Regarding cutting scholarship players mid year (D1):
A scholarship player can be cut mid-year in the sense that he is no longer welcome at practice, but his scholarship remains intact until the end of the academic year. Also, his name remains on the 35 man roster.
A program can reduce athletic aid for fraud, disciplinary problems (as judged by the main university, not the athletic department), becoming academically ineligible, or for voluntarily leaving the program. (15.3.4.2) That aid could, in principle, be redistributed to other players in the following term. (15.5.3.2.3) If the aid is terminated in the fall, the player is no longer a counter in the aubsequent spring semester, and would not need to be included in the 35 man roster (17.2.8.3 and 15.5.1)
So, as I see it, if a coach decides in the fall that a scholarship player won't be able to contribute, he has incentive to run the player off. It gives him an extra spot on the 35 man roster, and gives him some flexibility in scholarships for other players. For example, the coach could increase the scholarship for a player in the spring term with the understanding that the player would have a corresponding decrease in the subsequent year.
Now, about the program mentioned in the original post. I know nothing about the fall roster. And I only know the coach by reputation. He's a straight arrow with repect to recruiting. Lots of programs bend the rules by sending letters and emails to potential players which are ostensibly about camps, but which are actually clear recruiting. The program in question follows the rules strictly. So I suppose that the players involved have all been informed of and are aware of their odds.
Secondly, that college offers substantial discounts to any student who attended a Catholic high school, a discount for SAT scores above 1200 and even more for scores above 1350 (IIRC). I don't remember the exact amounts, but it is tens of thousands of dollars. So for the right student, the cost of attendence can be less than a UC or CSU school. If he hopes that he may be good enough to play baseball at a mid-level D1, why not give it a whirl? I think it is entirely plausible that there are players on the fall roster who intend to stay in that college, whether they make the team or not.