You probably know the news: Rails & Merb are coming together to make Rails 3.0 in 2009!
You can read details from many sources, including:
And I'm sure others (sorry if I forgot anyone!).
We started Engine Yard because of Ruby on Rails and we're very happy to support this cooperation between the two communities. Engine Yard folks who were working on Merb are now working toward Rails 3.0.
Thanks to everyone working on Rails and Merb for making the world a better place! I honestly believe that easier app development (and of course, deployment) does improve the world: it allows more people and their ideas to flourish, and that's a good thing!
Merry Christmas and Happy New Year!