I have been looking over the testool.log file for the merge objects action and I had a few questions.

I think I need to be selective on what to merge, as I have noticed that the merges between NPC entries are probably not wanted, as LGNPC entries are likely meant to overwrite vanilla npcs and not supposed to be merged. Additionally, sometimes there are compatibility patches between two mods that I am guessing are there to handle conflicts and should not be merged.

I have also seen entries that only differ by MODL and FNAM (example being particle arrow replacer.esp and the MPP), I'm guessing that there is no value in merging them, unless there is additional information than what the log shows.

My plan is to only merge entries that change pertinent items, such as creature entries and weapon / armor entries with changed stats, etc.

Any advice or comments welcome!

I just click in the merged objects and let TESTool do its thing and have never had any issues. I too use LGNPC. Never had a problem. TESTool generates a merged objects patch automatically that handles the issues you are concerned with automatically based on load order.

So if mod A loads first and mod B loads second, and they have conflicting edits, only mod B's edits will appear in game. Generating a merged objects patch won't change that. What merged objects does is allow the edits A makes to the same object as B that do not conflict to appear in game.

Also, with respect to dialog, I don't think those are merged with a merged objects patch (though I could be wrong about this). There is a separate option to create a merged dialog patch, but don't use that option. A merged dialog patch can cause problems in your game, or so I have read.

I wrote up some stuff on the Morrowind Modding Wiki on http://wiki.theassimilationlab.com/mmw/TESTool which could help. Basically, I'd suggest doing what Turija says: just let TESTool do it's thing. And don't use Merged Dialogues.

Actually I'd recommend using abot's MMOG (see wiki page) from the get go.