Have you tried deleting the Elements Preferences folder? That's always a good first line of defense when something that used to work correctly quits. And, no, an uninstall/reinstall would not have gotten that old Preference folder out.

With Elements closed, click on the start up icon and then make a quick grab for (Win) Control, Alt, and Shift keys (Mac) Command, Option, and Shift. Hold all three down until you get a screen asking if you want to delete the Settings. Say Yes. A new preference folder will build as Elements continues to launch.

If this doesn't clear up the problem with Photomerge, repost and let us know you've tried it, so we can scratch one more thing off the list!