SVN 1.8, Confused by tree conflict Edit Conflicts output

Using the new 1.8 merge and have tree conflicts with both files and a directory. For each case I get the same popup (see attached), basically says that the last merge operation tried to do something but file/directory was obstructed.

Two issues:
1) I was confused by what 'obstructed' means, I redid the merge from a svn command client and was given info that an object of that name already existed.

So I am guessing that is what 'obstructed' means, the file/folder already exists correct?

2) The only 'option' I am given is: accept current working copy state (mark as resolved).

I am confused by this, that basically says keep mine, ignore theirs, where before we could choose. How do we get changes from the source file, merge each file after the merge with no history?

Any help here would be appreciated.

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