In my app, I have a web.config file with an appSettings section. The appSettings section contains a number of keys that the app uses. The appSettings section also contains
I just had the same issue (configs not merging as expected), but after explicitly deleting the /bin and /obj directories from the solution-folder and performing a rebuild, everything worked as expected again, so I would suggest you try that and see how it works...
PS: Also make sure you set the file properties of the external config to 'Copy Always'. Otherwise it won't exist in the bin-directory where your running application lives.