As noted in the recent email exchange (and in Brian - lcdweb - forum post - http://forum.civicrm.org/index.php/topic,3459.0/topicseen.html) - we should modify the merge screen so that each of the following elements are handled separately - and can be merged independently):
Address block (street address+suppl 1 and 2+city+...etc.)
Piotr's background comment on this is:
"new dedupe rules treat address parts
differently than other 'location' parts (matching on city also must
match on location type, matching on email doesn't).
The current merge behaviour is more of an artifact of what was the
easiest to do for 1.8 (not sure whether schema back then didn't play
a role here as well), but this should be fixed, and such elements
(email, phone, IM and OpenID) treated as on par with address, not
as part of a location (but should keep their location_type_id)."