Creation and Dropping is not a trivial database operation as it involves a lot of behind the scenes work (e.g. each merge table creates two files .frm and .MRG and uses lot of open handles). You are trying to monitor what is happening while creating and dropping tables on the fly. This is usually causes issues as the mysql schema is trying to do selects and exclusive locks to create the tables. With DDL statements there is no concept of a transaction they just occur and will break anything that attempts to run at the same time.

You may be better upgrading to MYSQL 5 and using VIEWS or possibly creating HEAP tables on the fly as these are tempory in nature. However if you want to stay with 4.1 try adding INSERT_METHOD=NO to the end of the create table statement as this prevents some of the locking issues as the merge table can nolonger perform inserts.

Hope it help
UnderMine

Update: MERGE tables can be tempory just not in memory only like HEAP tables.