Merged Resource Dictionaries provide a way to define and split resources into separate files. By locating application resources in external file we can then reuse them between applications. This feature can be helpful in custom control development, but not only.
In Silverlight 2 resources cannot be factored into separate files and that leads to large App.xaml file holding application-wide shared resources. The same problem exists while developing custom controls. All default style keys must be specified in Themes/Generic.xaml which again leads to very large file.