Pulling a student athlete's scholarship who is doing everything asked of them is a very unethical.
An athletic scholarship is awarded on a year to year basis. It may be revoked during that time due to failure to perfom academically, breaking team/institutional rules but not for injury or a lack of athletic performance. If the athlete is notified that they will not have the scholarship renewed for the next year they have the right to a hearing by a panel not controlled by the athletic department.
If a student athlete decides to fight then they can make a good case for themselves, especially if the coach has no documentation showing counseling and performance objectives along with personal improvement plans. Many student athletes in my experience do not want to fight for the scholarship as they feel unwanted and a hostile environment has been created for them at the institution. Additionally, they have often given up other opportunities offered by other schools and getting another award can be difficult depending on when they are notified of the nonrenewal.
Pulling a scholarship from a player (for performance) shows that a coach is not a good evaluator of talent and/or a poor developer of talent. This is not something they want on their resume or as a part of their evaluation. This is also a public relations problem for the coach and program as former players can undermine recruiting efforts if they have been dumped. With the proliferation of social networking it is even more harmful for a coach to runoff a player or pull their scholarship.
Per the NCAA Manual:
15.3.2.4 Hearing Opportunity. The institution