/folder1/file1.jpg
/me/folder1/file2.jpg
moving me/folder1 to /folder1 should result in
/folder1/file1.jpg
/folder1/file2.jpg
But on OS X, it only results in
/folder1/file2.jpg
Replace conflicting files, but not the folders themselves.
What would you do?
I see one solution to this problem: let user decide what to do. Apple could add "Merge" button (or maybe a better title meaning "Replace files inside the destination folder with files in source folder") in addition to "Replace" in "what do you want to do" dialog. (Note that you can't simply name this thing replacing as in Windows, because it's really merging). This would also require some kind of comparison dialog to ask users what files to overwrite.
I think Apple just went with a simplest solution here instead of introducing the whole new concept of merging and new UI to users to potentially create a confusion ("hm... what should I do - what's Merge and what's Replace?"). I'm not sure if it's good or bad, but I personally never miss Windows-like merging mistakenly called replace.
The better thing to fix (unrelated to merging), I think is to put the replaced folder to trash instead of overwriting it, to allow users to undo their action (see http://daringfireball.net/2003/03/i_love_it_because_its_tras...). However, this creates a confusion again ("what's this thing doing in my trash, I didn't delete it")... UI is hard.
Technically, these files belong in the user-specific ~/ directory and not the package itself, according to the ADC specifications, if I'm not mistaken.
As for cut and paste... that's essential.
But the VERY worst thing is the lack of folder merging. Copy and paste a folder to a directory with a folder of the same name, and the contents of the destination will be REPLACED not merged with the source.