Are you using an SD card in your PRS-T1? If so: does the merging work for books that are on the internal memory of your e-reader? Unfortunately, I was unable to test it with an SD card.
I'll publish an update soon which should provide some more information regarding the things going on in there. Hopefully, that'll make clear what the problem is exactly.
Regarding the merge time: no, it should be very fast. I tested it with 500 A4 pages (about 15 megabytes), completed within at most 30 seconds. How many pages contain handwritten notes? How big is the original book (in megabytes)?