At last year's Fan Faire, Leko, champion of PvP balance, stood up after Mercenaries were announced and asked "Will Mercenaries work in PvP?" and then a series of questions about how they would be balanced, tested, etc. Well...better late than never.
While I can't really address everything being said in this post right now I can say we have been taking a look and we have a plan on how to make mercs not quite as overpowered in PVP combat as they are currently. Once we get the fix in place and we can accurately test it I can lay out the plan for you guys.
If you die to a merc you should not take damage to your gear. This will be addressed asap and we should be getting some power tweaks for them out to you as we can.