Yes, Distribution lists are geared to Outlook's internal needs. Neither Word
nor Outlook seems to have the facilities that a person doing mailmerge would
obviously need to make use of these lists.

If your distribution lists do not contain any nested distribution lists and
all you need in your merge is the e-mail address and/or the name of each
member in the list, you could consider the following approach
a. select the distribution list item in Outlook
b. use Outlook File|Save As to save the contents of the item as a .txt or
.rtf file.
c. Open the .txt file in Notepad or either file in Word. You should see
something like

---------------------------------------------------
Distribution List Name:    the name

Members:

member1name    member1address
member2name    member2address

---------------------------------------------------

(without the --------------------------------------------)

If you replace the stuff at the top by

Name    Address

and remove the paragraph marks at the end of the file, and save the file,
you should be able to use it as a mailmerge data source.

If what you were hoping for is that the distribution lists would be treated
like a list of contact data, with all the data for each contact (name,
title, postal address etc.) available to the merge, there are several
problems:
d. the members in a list do not necessarily correspond to contacts. A
member can be a standalone entries (just a name and address that has no
corresponding entry in your contacts/address book. problem is that the
membdistributin list. A member can be the name of a distribution list. It
may be possible for a member to be other things - I don't know
e. even the entries that you set up by selecting contacts from a list can
be misleading, because the member entry just stores a name and address. The
address can actually be different from the one in the contact/address book
record. There is no "link" to the original contact or distribution list
other than the name/address. The original contact is not necessarily in the
same contact folder.
f. as far as I can tell, there is nothing in each member's data to tell you
whether the member is a contact, a standalone entry, or a distribution list,
except that in thecase of a nested list the address field seems to be blank.

So even processing these entries using VBA is non-trivial in the general
case, although do-able I dare say. There may be some code at
http://www.slipstick.com to do it. If you know that all the members
correspond to contacts in the same folder as the list, or to contacts in a
particular folder, it would probably be quite easy to expand the list using
Outlook VBA.