I don't think merging will ever be fully solved by software. It's a problem created and solved by process. How annoying merges are is entirely dictated by process.

Sourcetree is the best git GUI I've used. That could be used as a model.

I think an old-style solution to merging would be fine: output a word file that uses a unique font style to indicate which user made what conflicting changes, have the user edit the document and remove all of the "merge styles", then continue.