Your code works for me on both
2008 (10.50.1600) Enterprise
2012 (10.0.2100) Evaluation
Both results are the same.
$actionACTIONnamename
INSERTADDEDcaseNULL
I can reproduce your error by forcing an incorrect collation:
CASE
WHEN $action COLLATE Latin1_General_CI_AS = 'INSERT' COLLATE SQL_Latin1_General_Cp437_BIN THEN 'ADDED'
WHEN $action = 'DELETE' THEN 'REMOVED'
END ACTION
Msg 468, Level 16, State 9, Line 12
Cannot resolve the collation conflict between "SQL_Latin1_General_CP437_BIN" and "Latin1_General_CI_AS" in the equal to operation.