I had the same experience with a sparse image growing even after deleting files.

Even though Mac OS X has this feature which is used with File Vault, Disk Utility doesn't have an option to compact a sparse image so I wrote the following script that when saved as an applicaton works great to compact a sparse image. Just drag and drop a closed sparseimage over the application.

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set |warning| to display dialog ¬
"To use this script, drag a Sparse Image over it." buttons {"OK"} default button 1

on open this_item
try
set this_item to quoted form of POSIX path of this_item
set Question to display dialog ¬
"Would you like to compact this Sparse Image?" buttons {"Cancel", "Compact"} default button 1
if button returned of Question is "Compact" then
do shell script "hdiutil compact " & this_item
set dialog to display dialog ¬
"Your Sparse Image has successfully been compacted." buttons {"OK"} default button 1
end if
on error the errMsg number the errNmb
if the errNmb is not 0 then

display dialog ¬
"Please unmount the Sparse Image before compacting." buttons {"Cancel"} default button 1
end if

end try
end open