What's the best advisable workaround to editing a .NET config file during install in a merge module?
That would be a custom action that changes the file after it has been installed on the target machine. Another method is to use some third party tools that perform the update.
However, if you know you'll be including the merge module in your own projects, you can try to add the XML update from the main package. This should update the file even if it's included from the merge module.
All the best,