I'm just curious - I would expect to see an X mark.

My opinion: X marks are associated with closing things, but also with crossing things out. "No" signs (like the one used in the screenshot above) are more related to halting, preventing, disabling; but not really removing. Maybe scissors are the most intuitive? (I suppose you could argue that scissors are related to cutting things out, to be used later (think: cut, paste), but I'm thinking of cutting the input off (think: remove), which is also the way Scratch 2.0 uses scissors (i.e., the Delete tool).)
Not that this is necessarily a great option, but a trash-can icon is sometimes used to mean deleting something too
I agree; I didn't realize what the cancel sign did or even that it was a button. It looked like it was indicating that there was some error with that input field.
Great question. We should update that icon.
Here is a trashcan icon: delete-arg.zip
Adding the help wanted label if anyone would like to take this on. 馃槃
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I agree; I didn't realize what the cancel sign did or even that it was a button. It looked like it was indicating that there was some error with that input field.