You would generally only see the "Entire spreadsheet" prompt if you were
using Word 2000 or earlier, or had opted to see the different connection
methods in Word 2002 or later. Otherwise, you see a different dialog box
anyway.

As far as I know, there are only two ways to get rid of this dialog:
a. don't make new connections to spreadsheets. In other words, if you only
ever use one spreadseheet as your data source, once you have set up your
data source, save the mail merge main document. When you re-open it, the
connection should be re-opened. However, these days you may see some
security-related questions which can be even more irritating :-)
b. open the connection using VBA code. But that is only worth it if you
have someone to write and maintain the code, and if it makes the whole
process of connecting to your data source simpler.

Sometimes this is a display problem - see e.g.

http://support.microsoft.com/kb/209859

Peter Jamieson