I figured it out. What you need to do is attach the computer which has the library you wish to merge to the other computer via firewire. You boot that computer in target mode so it shows up as an attached firewire hard drive on the destination computer.
You then go into itunes on the destination computer and choose import and select the library master file from the now attached firewire hard drive. It will import the references for the library, then you choose consolidate library and viola, its merged. I am still waiting for the consolidate to finish ... about 500gb of data.....
ciao... Rob