I created a branch from the trunk and worked on the branch. I then merged changes from the trunk to the branch and then merged from branch back to trunk. All this worked as it always does. The problem is that the solution contains an external and some changes (for example a new file was added) were made to it on the trunk. Now, some really strange things are going on. When I update the external, the new file that was added gets added but when I update the parent project (by parent I mean the one which contains the external and the file is readded) then the file is deleted. Any ideas?
After some searching I decided to check the SVN properties of the project. The external entry for the project specified a particular revision to download. I changed it to point to the head revision instead and all was well. I hope this helps someone in the future.