Anyone has a merged copy of the .esp including the update?

I'm a total noob but I think if you are using Wrye Bash you can create a bashed patch with the original + updates. Someone feel free to slap me if I'm wrong

Well, I'm no expert on bash, but bashed patch usually pulls only some of the records of a plugin and merge them, leaving most mods still active. On the other hand, some of them are indeed merged fully and auto-deactivated (ghosted - it leaves a plugin in Data folder, but changes the extenstion from .esp to .ghost). Those are usually mods that changes only some type of records, like stats or graphics, they don't add new content (AFAIK).

In that case, if OP author meant T&C with update, it would require merging using some external tool, like Tes4Gecko or Merge Plugins Standalone http://www.nexusmods.com/skyrim/mods/69905/?

Ah, okay. I was actually wondering myself, as I have QTP and its update (which has just the updated files in it) - in WB it shows they are incompatible. I merged them manually but I'd rather not do that in the future.

If you're talking about plain installers, not with plug-ins (you mention QTP, which is a straight replacer), then you really don't have to do such a merge, ever. You will see conflicts, true, but what you do is change the install order in the installers tab so that the one you want wins out (you can do that using the Move to... option). The conflicts tab will tell you which are higher and lower, so you would want QTP updates, for example, to show as higher.