To enable the Merge to e-mail option, try the following:

First, check that Internet Explorer|Tools|Internet Options|Programs (or the
equivalent in older versions of IE) has your e-mail package set up to be
your default e-mail client. It almost certainly is.

Assuming that isn't enough, you may be able to fix this by adding some lines
to the WIN.INI file, which should be in your Windows directory (typically
C:\Windows)

To try this, proceed with caution! Close all your programs (Word, your
e-mail package at least), and open the WIN.INI file with Notepad and ensure
the following lines are in there, or add them if they are not:

[Mail]
MAPI=1
CMC=1
CMCDLLNAME=mapi.dll
CMCDLLNAME32=mapi32.dll
MAPIX=1
MAPIXVER=1.0.0.1
OLEMessaging=1

(IN fact

[Mail]
MAPIX=1

should be enough, but the above lines are the ones you will typically find)