The issue is specific to the group that you are running the mail merge for. This will happen if a security category wasn't chosen when the group was created. It appears that a security category was chosen when you look at the group, but it's actually just showing you the result at the top of the menu (administrators only). This is not supposed to happen and a bug has been submitted for this problem (bug # 67453). The resolution for this issue is to change the security category to something else, such as General and save it. Then change it back to whatever group its supposed to be in. Try your mail merge again and it should work.