Hi Thomas,
With the way you have everything set up, you are kind of tweaking the way s2member works out of the box. In the PayPal options of s2Member you have specific settings for the EOT (end of term) behaviour. The settings chosen here govern how s2Member will behave when calculating what to do with cancelled memberships etc.
To answer your question above, if a user cancels their membership then the user would be downgraded all the way to level 0. Note however, that if you have 2 levels of membership you could create a downgrade button so a user could downgrade their membership to level 1 or alternatively you could offer them a cancel button which would cancel their membership completely returning them to level 0. As your level 1 is set up as a ‘free trial’ it wouldn’t make sense to do this.
A simpler setup for you would be to use just level 0 and level 1 membership options and a member is either a free member or a paid member. You can create buttons which will let a user have x days free (or trial) membership at level 1. The only reason I can think of for someone wanting to set something up your way is so that a potential member can have a trial without entering any payment details. As far as I know, I don’t think you can have a ‘trial level’ at level 1 without any payment details being taken so having the l0, l1 and l2 levels is just adding more confusion for you.
Hope this helps,
Neil.