Cannot resolve merge conflicts in this version!  (Version 4.0.1 (234))

When I have a merge conflict, I choose Launch External Merge Tool.  The tool DOES NOT launch, but the system reacts as if I launched the merge tool and saved without resolving the conflicts.  My file with the conflicts is now in "pending" instead of in "conflicts", but the conflicts are still there, and Launch External Merge Tool is now grayed out when I try to select it for the file.