Hi
A customer of ours had a similar-sounding problem, which ended up being related to the size of some very large XML files. I'm not sure whether this is the same problem you're seeing, but it might be worthwhile trying to correllate this problem against the size of the template and the XML file you're trying to merge.
Sorry to be so vague, but it might be worth-while at least investigating this as a possibility...
Howard
http://www.avoka.comPS This customer was on Forms 7 not Forms 6.