Why is the return type of Deref::deref itself a reference?

that references don’t implement Deref

You can see all the types that implement Deref, and &T is in that list:

impl<'a, T> Deref for &'a T where T: ?Sized

The non-obvious thing is that there is syntactical sugar being applied when you use the * operator with something that implements Deref. Check out this small example:

use std::ops::Deref;

fn main() {
    let s: String = "hello".into();
    let _: () = Deref::deref(&s);
    let _: () = *s;
}

error[E0308]: mismatched types
 --> src/main.rs:5:17
  |
5 |     let _: () = Deref::deref(&s);
  |                 ^^^^^^^^^^^^^^^^ expected (), found &str
  |
  = note: expected type `()`
             found type `&str`

error[E0308]: mismatched types
 --> src/main.rs:6:17
  |
6 |     let _: () = *s;
  |                 ^^ expected (), found str
  |
  = note: expected type `()`
             found type `str`

The explicit call to deref returns a &str, but the operator * returns a str. It’s more like you are calling *Deref::deref(&s), ignoring the implied infinite recursion (see docs).

Xirdus is correct in saying

If deref returned a value, it would either be useless because it would always move out, or have semantics that drastically differ from every other function

Although “useless” is a bit strong; it would still be useful for types that implement Copy.

See also:

• Why does asserting on the result of Deref::deref fail with a type mismatch?

Note that all of the above is effectively true for Index and IndexMut as well.