I didn't expect him to be given story arc time, but after last week's focus on Andrea, it makes sense that Merle would get his redemption in the spotlight.
It's kind of a win-win for the group - a fair number of the Governor's elite soldiers have been killed, yet at no cost to the group (after all, Merle was only at the prison because Daryl was at the prison, and had made no effort to integrate himself).
The end of the Ricktatorship might not be a good sign, as it returns the group to a structure similar to the one they were in at the farm: without a strong leader, they bickered and argued what they'd do next, rarely reaching a consensus. Of course, having gone through hell, the group dynamic has changed since then and they're no longer deluding themselves that things can return to a pre-zombie state. In Hershel and Daryl, they also have voices as strong as Rick's, so at the very least there will be three key points of view in any argument (but who's to say that Daryl won't simply side with Rick?). But dress it up how you will, I think they'll struggle under a democracy.
In terms of people dying, I still think Glen has to go, particularly now that he's gone all Captain Foreshadowing on us - "I want her to know before we all die [sic]". I think it's going to be Glen rather than Maggie, because Glen has already had his one-man vengeance show, and to put him back into a state where his actions are controlled by things done to Maggie is lazy.
I'm no longer sure that Daryl will go. I suspect he'll use battle as a chance to grieve, and that he'll disappear at some point, but he'll make it out alive as the dust clears.
Someone needs to be walker-fodder, and I think it will be Carol, who was also touched by Captain Foreshadowing this episode - "I'm not scared of anything [sic]".
On the Woodbury side - the Governor is an obvious, as is the guy heading the elite soldiers (Martinez? Whatever he's called, I'm putting money on Daryl being his killer). One of Tyreese's group got in the way of Merle's bullet for the Governor (at least I think it was him, and not the kid with asthma), so his brother is going to go out in a blaze of vengeance.
I'm not sure about Andrea and Milton. My gut feeling is that Milton will die by the Governor's hand helping her to escape. Andrea gets fatally wounded (shot? Bitten), makes it to the group, but dies shortly thereafter.
Obviously, Tyreese and his sister will join the prison gang to bolster numbers.