Merge / Append doesn't work with GCS_Assumed_Geographic_1 (use ArcCatalog's Toolbox)

I've come across this before so I'm writing it down. The Merge tool in ArcToolbox 9.1 isn't letting me merge the Tiger shapefiles I got from the ESRI arcdata site. I think it may have to do with the assumed geographic coordinate system. However I changed it (for every shapefile) to GCS_North_American_1927 and still had some trouble with it. The Toolbox in ArcCatalog seems to work ok. I had several things going on in the ArcMap project prior to doing this but I changed the data frame to be the same as for the shapefiles. Oddly everything worked fine when I closed ArcMap entirely and ran Merge from the toolbox in ArcCatalog. I think they screwed this up somehow in 9.1. It used to work fine in 8.3.

Incidentally ... Somebody created the old geoprocessing wizard from 8.3 as an extension for 9.1. I used this extension before with some success.
GeoProcessing Wizard

formerly in 8.3 ... but now works in 9.1