Responding to Flomaster with the Joe and Mary example. They are not merged in Gmail. The problem is that they do not both display on the Droid. Are you not able to recreate that?
Try this: Create the example just like you described it, say with the same work tel for both Joe and Mary, but give them each a different mobile tel. (Now that's a realistic example, right?) Be sure to create the contacts in Gmail, not on the Droid -- it might make a difference. (All of my contacts were initially on Gmail and then synced onto the Droid -- again a realistic example since the Droid is a newer product than Gmail.)
Now, go to the Droid and try to search for Joe. Now, try to search for Mary. I believe you will find one but not the other. Big problem!
Here's another weirdness -- whichever one is missing, now go to Gmail, and look up the mobile tel for the one which was hidden on the Droid. Now, manually dial the mobile tel on the Droid for the one which the Droid could not find when you searched. Surprise -- the name will pop up when it dials the number -- proving that the Contact is indeed on the Droid, but it is hidden.
Yes, Motorola is calling this some kind of "merging" but I would call it instead "hiding" because the records are there and can be found individually by the Droid except when we (as users) are looking for them. Arghhh.
Still asking for help. I have over 300 of these records which the Droid is hiding from view or searching. Major problem.