"Merry is...not a man(human)". Quite right! As a matter of fact, in the book (sorry) he stresses this at Isengard, when being introduced to King Theoden as a "man of valour(?)" or some such; he is indignant at being referred to as a man when he is a hobbit. That's important, later - but it didn't happen in the film, so presumably viewers are meant to figure it out or know it already.
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