Yes, it still acts goofy.
As soon as I move the block back to the TitleBlock Layer, and lock the TitleBlock layer, the LayerMerge fails again.
I'm thinking this is more of an issue with CAD than with my block &/or dwg. I know it isn't just my installation, as the problem is reproducable on multiple workstations.
It's a dome scratcher, that's for sure.
craigr