We just got Office Plus 2007 at my office and are having this very same issue. We have found that having the database file already open, then selecting it for the merge, the DDE connection works the first time.
If the above doesn't work for you, we've found that on the second try, even if you lock up and and have to restart, the DDE works.
Good Luck. We are finding some new glitch every day!
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