It looks like a duplicate of issue1459. Non-existing merge tools _are_ silently
ignored - as long as they don't have an absolute path. And recently an absolute
path was introduced, and that revealed the bug.

Could you try to remove your workarounds and change the line in mergetools.rc to
filemerge.executable=whateverwithoutslashes

That can perhaps explain why nbecker felt he had to disable the default config.