- Vorpal doesn’t do ‘damage’ and therefor functions as normal.
This one.
I don’t really know how to back this up; there isn’t really anything more to say other than the fact that merciful affects “damage” only, and the vorpal beheading effect isn’t “damage.” There’s just no interaction between the two.
“Damage” is a specific game term so suddenly shifting definitions away from the game terminology and into a general English-language understanding of the word, which would no doubt include beheading, isn’t supported by the rules and would be inconsistent even within the context of the merciful description (which refers to “1d6 nonlethal damage,” unquestionably using the word as the game term). And while it’s true that the rules are sometimes inconsistent like that, there’s just no evidence that they intend to do so here. Indeed, it is very unlikely that the authors ever consciously considered the combination at all, to even have any intention for how it would work.
Also, merciful converts “damage,” however we’re defining it, to nonlethal—which is to say, it doesn’t prevent the damage, it just prevents the damage from killing the target. Even if we really wanted to read “damage” as including the beheading, merciful still wouldn’t prevent the beheading—it would just somehow result in someone surviving without a head. Since the game has no rules for how that would work (nor do we have any applicable real-world intuition for most targets), we’re well into undefined behavior here—a strong sign that we were never meant to go this way.
It would be reasonable for a GM to prevent the creation of such a weapon, or to block the vorpal effect while the merciful effect is activated, or to houserule some special effect for the interaction (guaranteed KO, maybe?), but the rules don’t support any of that.