Already ATI is looking better than nVidia. AMD has utilised ATI's potential to a huge extent, and their cards are comming from a smaller 55nm process, and they are also a hell lot cheaper, better VFM and better performance per dollar.
So there is no reason for the two companies to merge. As I already said, Havoc may be purchaced by AMD, but thats the limit. No more purchases. They now need to cash in on ATI's success, then develop better CPUs, as Athlon X2, which was made to compete against Pentium D, is still there while intel has moved generations ahead. AMD ofcource, releases fewer but better and more lasting products, and I am fully in support of them as long as they release high end OSS drivers for CPUs and GPUs as soon as possible.