That sounds like two separate UI bugs.

1. Merging should probably ask for confirmation.
2. The warning could be better, assuming it really means it will only delete the exact information.

And a feature request:

3. Some way to unmerge, please.

Based on this thread, this strikes me as a rather desirable bug/feature request, depending on your point of view:

4. Backup then restore should get you back to where you were before - or at least have that potential. That means "delete all contacts" should, at the worst, only delete those contacts which are actually on the phone at the time, not contacts which haven't yet been synced to the phone.

And this would be a nice bonus, letting you confidently explore with the phone by limiting possible damage:

5. General undo facility to undo configuration changes including contact changes would be great! C'mon guys