Merb and Rails merge?

Yup, they're merging. It is a work in progress, will be released soon
as Rails 3. (http://www.youtube.com/watch?v=up0kiOJvUpI) Here is a
nice talk about it.

Will Merb continue to exists/evolve as a separate framework (after the
merge)?

Is Merb Dead?

http://marcricblog.blogspot.com/2008/12/merb-is-dead.html

The big question is: how they will do it?

Rails 3.0 – LIVE, released!

http://marcricblog.blogspot.com/2008/12/rails-30-live-released.html