To give the key to the merchant, find his ID under the NPC list in the object window. Either double-click or right-click and select "Edit", and the NPC window for the merchant should pop up. From there you just find the key in the object window and drag it into the NPC's inventory.
If you select the "AI" button in the merchant's NPC window, and go to the Services tab (I believe), there should be a list of boxes you can check that will allow the merchant to trade that selected item type. If they're all grayed out, go back to the NPC window and un-check "Auto-Calc".