Every time the opposition talks about a coalition...

...a Tory wets his pants. Given that, I'm guessing the latest stories about a merger between the Liberals and the New Democrats must have had the backers of the Stephen Harper Party of Canada bricking in their Stanfields this week.
Polling shows support for the idea of some kind of cooperation between the two parties and I don't doubt that it is a possibility that the two parties could merger, despite the various protestations and gnashing of teeth from the old lefties still in the NDP and the business-friendly right wing of the Liberals. After all, everyone said a merger of the Progressive Conservatives and the Reform/Alliance parties would never happen either.
Whether the Liberal Democrats would be a good idea or not bears some thinking about.
While old school lefties in the NDP and labour stalwarts might hate the idea of getting into bed with "The Establishment", especially a party that is likely to led by Bob Rae -- who they still bear a grudge against for "Rae Days"-- and consider the whole merger idea a sell-out of the party's ideals, I think those people are in the minority in the NDP these days, though they still make up a significant segment of the party's support. There are a lot of pissed-off pragmatic progressives out there fighting the agenda of the current government who don't really give a rat's ass which party banner they line up behind, just so long as it leads them to battle, achieves a change of regime and rights (or more accurately "lefts") the ship of state, takes us off the express track to Rightist Corporatist GOP/Teabagger-style Americanization and, if at all possible, makes Stephen Harper cry in public and boots John Baird in the plums for good measure.
On the other end of the equation, the business/conservative wing of the Liberal party may flee for the Tories, which, to be honest, is where many of them came from in first place, back when Brian Mulroney became the most unpopular man in the country and left Kim Campbell holding the electoral bag. They were fiscally conservative and, to a degree socially conservative too, but being from Ontario and Quebec they weren't about to throw their lot in with the Alberta separatists in the Reform Party so they migrated to the Liberals under Jean Chretien and Paul Martin. Both the influx of Red Tories and the combined leadership of those two men dragged the Liberals far to the right of where it was in the days of Pierre Trudeau and Mike Pearson. At the same time, the pendulum swing to the right during the Thatcher-Reagan-Mulroney years had also dragged the Overton window further right and what was "centerist" in the '60s and '70s was considered "left of center" by the end of the '80s, "liberal" by the mid-90's and is currently referred to as "godless anarcho-socialist islamofascism" by teabaggers and blogging tories today. In the last 30 years the pivot of the political pendulum has moved steadily to the right and the Liberal Party of Canada has moved with it. Merging with the NDP will definitely drive some people away from the party and into the arms of the Harper Conservatives.
However, what a merger would do is drag the center of Canadian politics back to the left - maybe not back to where it was in the '60s and '70s, but at least it would stop the steady march toward the right and maybe by providing us with a more liberal Liberal Party and a group of New Democrats actually in power, drag the Overton Window a smidgen back toward where it used to be, back when the NDP wanted to nationalize the banks and before "liberal" became a epithet in public discourse.
Those NDPers prepared to jump ship to maintain their ideological and ethical purity rather than sell out to the corrupt, power-hungry Liberals, would likely flee to the Greens, finally providing the Green Party with the numbers it needs to put some people in the House of Commons and become a real force in Canadian politics rather than being seen as a bunch of well-meaning hippie environmentalists who are unelectable. Those Liberals fleeing the merged parties out of a distaste for dealing with those union-loving pinko welfare bum radicals from the NDP, will hold their nose and rejoin the Conservative Party of Canada, probably pulling that party back from the brink of becoming the GOP North. If enough of them change sides to keep the Conservatives in power, there will once again be a sufficient number of Red Tories to deny the  crazies their red meat, and since Konservative Krazies  gotta eat, it might even be enough to drive them out of the Conservative party and back into the Reform/Alliance/Bund party wilderness.
These would all be good things.
The likely result then, would be a Liberal Democrat government with either a narrow majority based on the combined Liberal-NDP vote in Ontario and BC,  or a the Conservative hang on to more seats in Ontario, a minority government in which they hold 40% of the seats with the Bloc and Conservatives neck and neck in the race to form the official opposition and a respectable Green Party presence in the House of Commons.
In other words, win-win.
Now, having said all that, I think it is far more likely for the Liberals and the New Democrats to put any merger plans on the back burner due to possible internal and conservative-driven media backlash and instead work toward the idea of a coalition that would announce its intention to form a government following the next election if the Conservatives fail to win a majority. The coalition could effectively cooperate on a national basis to get behind the most like candidate to succeed - "putting partisan and ideological differences aside for the good of the country in this time of terrible crisis brought on by the current Stephen Harper government's mishandling of so many grave issues of importance to all Canadians."
The Conservatives would scream bloody murder, look like a bunch of crybabies and either hand the Liberals a straight-up majority, or, assuming some bait-cutting and horse-trading can be done in good faith by the Liberals and NDP, a solid 65% of the House of Commons and most of the seats outside of Quebec and Alberta.
If a Liberal majority ensues because of dealmaking on the part of the New Democrats, the NDP better have a blood oath signed by the Liberal leadership to include them in the Cabinet  -- and the Liberals better live up to it or they will be known as welshers and cynical opportunists, considered even bigger liars than the Conservatives and never get another left-of-center vote for the next 20 years. Which some in the Liberal Party might consider a valid trade-off for five years of an unfettered majority, but most of them would be the ones most likely to jump to the Conservatives in the first place. I doubt very much that such a betrayal could be spun to the satisfaction of the public. More likely is that even in the event of winning a slim majority, the Liberals would have to dance with them that brung them and, depending on the polls, call a snap election within a couple of years with no coalition deal or carry on and merge with an eye to maintaining power and regaining the mantle of the "natural governing party" under the Liberal Democrat banner.
Now, where is my Warren Kinsella-sized strategic consulting cheque?