The latest versions of WordPress DO generate robots.txt files via rewrites, if there is no robots.txt file already present in the main WordPress directory.

If you go to the Settings->Privacy menu option in WordPress, then you’ll see an option there that changes WordPress to block or allow search engines to index the site. If you switch this, then you’ll notice the “pretend” robots.txt file changes.

So yes, WordPress is absolutely generating this fake file. GoDaddy hosting is NOT at fault here.

Godaddy’s version:
User-agent: *
Disallow:

My Original version:
User-agent: *
Disallow: /blog/wp-login

What’s happening is that the [R] flag is rewriting a URL like “robots.txt/” into an absolute URL “http://www.squareoak.com/robots.txt”. It also changes the requested filename from something like “/path/to/robots.txt” into “http://www.squareoak.com/path/to/robots.txt”. It does this to signal to Apache to send an external redirect, instead of just silently rewriting the URLs. The problem is, without the [L] flag, we continue evaluating other rewrite rules after we’ve done this conversion. If those rules rely on the requested file being right, you’re going to get weird behavior.

One of the rewrite rules we evaluate after doing this trailing slash removal bit is WordPress’s robots.txt rule. It basically says, “If the requested file does not exist and the requested URL is for robots.txt, act like the user requested index.php?robots=1″. Well, since the [R] has changed the requested filename to be invalid, but the URL is still for robots.txt, this rule gets applied.

How does this explain what you’re seeing? I think you may have initially gone to http://www.squareoak.com/robots.txt/ (with the trailing slash). The incorrect rewrite rule basically caused you to see WordPress’s dynamically-generated robots.txt. You noticed this wasn’t your robots.txt file. You went in and deleted your robots.txt file in an attempt to verify that there was a “phantom” robots.txt file being served by GoDaddy. But when you did this, going to http://www.squareoak.com/robots.txt (with or without the trailing slash) caused WordPress to serve its index.php?robots=1. So you think you’ve confirmed that there’s a phantom robots.txt. You come back later, you put your robots.txt file back, you check http://www.squareoak.com/robots.txt (without the trailing slash), see it’s working now, and think, “Ah, GoDaddy fixed the problem.”

The bright side is, GoogleBot (and every other bot) is requesting “robots.txt” without a trailing slash, so the right file is being served.

You casually accuse them of fraud, but to what end? That’s a serious question. You seem to be jumping to malfeasance without warrant: there’s plenty of alternate explanations and culprits that fit the scenario.