UC Davis now offers the MERLE Test!

The M locus is the home of the merle allele. Merle is dominant, and so denoted by the capital letter M. Non-merle is recessive, and denoted by m. Merle is interesting because all normal merles are heterozygous (Mm). A homozygous merle is actually a double merle.

Merle affects only eumelanin. That means that any black, liver, blue or lilac in the coat, eyes or nose will be merled, whether it's the whole of the body, a mask on a sable, shading, brindle stripes, or even a saddle. Phaeomelanin (red) is not affected at all and will appear as normal.
Most Black based Merle dogs are called "blue merles" because of the bluish color between the patches in their coat. This is a widely-used term but is actually misleading. Technically they should be "black merles". Their nose pigment is black and their eyes are brown or blue. They are able to make normal eumelanin in their coat, so their patches are black. If they didn't have the merle gene, they would be solid black. "Blue merle" is misleading because it seems to say that these dogs have blue pigment (dd acting on black), when in fact they have black.

The random coat dilution caused by merle also affects the eyes and nose. The eyes may be all or partly blue, and the nose may be all or partly pink. Not all merles have blue eyes or pink noses though, and merles with heavy dark patching are more likely to have normal eye and nose pigment.
Due to the unstable and variable nature of the merle gene, sometimes merles have patches that are only partially diluted, and are between the base and the patch color. These are known as dilute spots, and they may sometimes appear brownish. Dogs with very extensive dilute and/or brown patching are likely to be tweed merles.
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We talk about coat color being "diluted" in a merle, but note that dilute spots don't have anything at all to do with the Dilution gene (d), and are just a normal variation of the merle pattern.

Merle acts on the black pigment in the iris of the eye just as it does on the coat, so merle dogs often have part or all of the eye blue. (This does not affect their vision, though since it happens to some extent in the retina as well it may make it harder to diagnose certain eye problems.)
There are always two copies of a gene, alike or different, in any dog. If we call the merle gene M and the non-merle gene m, any given dog can be mm, Mm or MM. The mm dog is the normal.  The Mm dog is a blue merle, chocolate merle, lilac merle, black merle, or sable merle, depending on what color it would have been without the merling gene. An MM dog, often called a double merle or a homozygous merle, will be mostly white and sometimes can be associated with deafness or blindness.
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Breeding merle to full color will produce one half full color and one half merles, but no defective whites. The merle to full color breeding, then, produces just as many merles as does the merle to merle breeding, and without the danger of defective puppies. The safe breeding for a merle, then, is to a non-merle mate. This breeding should produce all healthy puppies, and about half will be merles.

Sable merles are no more likely to have health problems than any other color.  The real argument against sable merles is that they may be mistaken for normal sables. If two such sable merles were mated together, the resulting litter could contain defective whites. What a shock for the breeder that may produce lethal whites.
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Very few breeders have been lucky enough to get high quality homozygous (double) merles that are not too severely affected to breed - but it definitely takes a lot of luck and really top quality black merles to start with. Merle to merle breedings are only for the very experienced breeder who knows his/her lines and what they will produce, and it has probably produced more heartbreaks than good homozygous merles, even for the experienced breeder.
There is no such thing as a sable, blue, chocolate, lilac, or black merle gene. There is only a merle gene. Merle is a dilution gene, that is, it lightens whatever the coat color would otherwise have been. The lightening is not spread evenly over the coat, but leaves patches of undiluted color scattered over the dog's body. Also, the lightening seems to work primarily on the black pigment in the coat, so any tan on the face stays even.