FCS development is continuing, definitely. As far as I know there will be a version 2, and it will address a lot of the issues raised by this list with FCS 1 and 1.5. As per when, don't ask me because I don't know.
As per the "merging", yes it was a poor choice of words. All it means is that Breeze Live (sold as part of Breeze) is using Flash Communication Server as its communication platform. It also means that internally (at Macromedia) the two teams have been merged into one to work better together. What does this mean to you? It means that a real, enterprise-level application is being built on top of FCS. So, if we encountered any bugs or workflow issues with FCS when building Breeze Live, we worked with the FCS engineers (now on the Breeze team) to resolve them. Which means that version 2 of FCS will have all the improvements we asked for. Basically Breeze Live is the ultimate beta-tester for FCS, and every FCS user will benefit from it.
Screen-sharing: Breeze Live uses a special player that has a screen-sharing encoding coded in it, and a special version of FCS that understands it and broadcasts it to all clients connected (the receivers can use the standard player, you only need the special player for broadcasting). Is that going to be part of FCS 2? I don't know (not my decision to make). Camtasia, on the other hand, I heard that it has come a long way since its first version, you should check it out.