NewInTown I've heard that unlike with Goldman's widow and Follies, the people who look over Furth's work have far less issue with what version is used. In the case of Merrily it very much seems that Sondheim himself is the one who insists on the revised version. While I think the revised version overall works better, I prefer a lot of the original and since this is a semi staged version it would have been an interesting chance to go back to that (particularly since, as you say, the point of Encores is to do little seen works and the revised Merrily is pretty easy to find decent regional productions of...)
Speaking of--I do find it a bit annoying that year after year Encores seems to get further away from their original concept to stage rare works. I know the shows with names people know sell bigger tickets and perhaps make for more enjoyable evenings, but some of their choices have been fairly ridiculous. I'm pleased to see they're finally getting around to Pipe Dream, which IMHO *does* fit the bill, this year though.
"Fortunately for them, very few theatre-goers pay much attention to words at all (book or lyrics), as long as they find the singers attractive or sassy, and sufficiently loud."

Ha! Though I wouldn't be surprised if quite a bit of the libretto was included in this Merrily...