So, probably, there is a limit on package size that can be created by the merge process in S3PE, and that limit is much lower than what the game can actually handle.

Good to know.  I think you guys have answered all my questions.  Many thanks.

That was my main concern - whether I'd eventually try to merge too much stuff into one package.  Do you (or anyone) happen to know what the limit is on that?

I have successfully merged the cc I have now into a small number of package files.  I am trying to plan for future downloads.  Would it be safe to remerge files?  For example:  I have merged all my furniture cc files into one package.  When I download more furniture (and test it with the blue lot tool and process monitor), is it then safe to grab the original big merged package and add all the new stuff to it?

Common sense tells me the answer is yes.  However, I am a noob working hard to understand this process and would like to check my assumption with people who are more familiar with these procedures.

I've been doing mine in GIMP 2.6.  You can either type the .png bit in manually or scroll down to it in the extensions drop down.  You'll then get a box asking about the interlacing and stuff.  Just choose the default options and it should work. 

Has anyone tried the "effects" yet?  My sailboats and seagulls show up fine, but I can't get the buoys nor the various types of surf to work at all.

I am curious about the traits Evil, Mean, and Grumpy.  Did they all make it into the game?  If so, are they actually different from one another, or is EAxis just using them to pad out the list of traits?

I guess while I'm at it, I'll also ask if there are any other sets of traits that are all basically the same.