Hi, it took a long time but I finally realized what the problem was:
I had forgotten, but when a item is in a certain status, that item cannot be edited unless moved out of that particular status. This is especially true if you have a review attached to a certain status. If the items is requires a review to move from one status to another then that item cannot be edited until a review has happened and the correct number of people have accepted it or rejected it. So that means if you are trying to merge (which will make changes to the item) it will give you the same error as if you had tried to edit the item. So, when using Working sets, it is important to make sure that before creating them, the items are in a status that can be edited. If not, you will not be able to merge.