From the Merge menu, select Write Merge File.
Choose a subdirectory by double-clicking on one of the folder icons.
The bug is that the chosen subdirectory is not actually used to save the file.
This can be seen by looking at the name in the box to the right of 'File name:'.
It is not updated to use the selected subdirectory.
Workaround: Manually change the file path in the 'File name:' box before pressing Save.
thanks - Gal Aviel.
Good catch. Am pretty sure I know what happened: that the filename in the browser dialog initially shows up as an absolute filename, instead of a relative one. Will be fixed in next release (shortly, I expect).