It looks like the keyboard problem is newer xkb-data from Ubuntu overwriting xkb-data from Mer. Manual package install fixed it for me in Mer-0.9 and Mer-0.10 image I got from stskeeps has got it fixed.

After I have installed LXDE there is plenty of RAM (around 50MB) left over for apps. Hildon is terribly bloated. I started removin all packages with "hildon" in the name.

Now the next step, to get wifi working with wpa_supplicant.

Mer is awesome, thank you guys.