1) I highly recommend Agile Web Development with Ruby on Rails. I also recommend the Pick Axe (Pragmatic Programmers Ruby book). I do not recommend Ruby for Rails. I bought it and skimmed it to realize I already knew everything in it after reading the other two.
2) B/c it has a great ORM layer (ActiveRecord) and strong ajax libraries (integration with prototype/script.aculo.us) which make it easy to quickly put together a very well organized app that has a lot of UI sizzle.
I also expect Merb to continue to gather steam, especially for people who "get" rails and who want to take it in specialized directions.