Why does Michael disapprove of Merle and force Connie to break up with him...

Nothing I remember from the film explains it. I theorize that he had Tom Hagen do some background research on Merle and the resulting report was negative. Seems like the kind of thing Michael would do.

I took it as Tony Soprano said "you stay with your own!" type of thing. Merle and Deanna (Fredo's wife) stood out like sore thumbs during the dinner after the communion. The daughter and now the sister of a mob boss, can do WAY better than Merle Johnson! He wasn't Italian and couldn't even afford to book passage on the Queen. lol

What pissed me off was the mom insulting him behind his back in Italian. He did not deserve that. She did not know him.

Merle was never disrespectful like Fredo's wife.

Putting aside Merle for a moment, Michael and Tom both realized that Connie was not in the right state of mind to be making important life decisions. She obviously had never gotten over what had happened with Carlo and was still lashing out at her family over it. For months at a time she would disappear, not having any contact with her children. Michael mentions that she had just gotten divorced from one mistake and was already making another one. And to top it off, she obviously drinking way too much.

And then there's Merle. The non-Italian man who had just met Connie and was already wanting to marry her. It's pretty clear that he doesn't have any money, because he has no shame in going to her brother to ask for some. Michael yells at Connie for hanging around men who treat her like a whore. I would add that they also see her as an ATM. So, Michael makes it clear to Connie that she won't be getting any money and will be cut off from the family if she marries him right then. We never see Merle again, so its a safe bet that he bailed once it became clear there wasn't going to be any money for him here.

there's a deleted scene which takes place immediately before this, in which one of Sonny's daughters wants Michael's permission to marry, and the groom-to-be happily answers all Michael's questions about his family and future plans and is 100% respectful to Michael. They're not asking for money, just Michael's permission/blessing. It's shown as the appropriate way to handle the situation.
It's a pity they cut that scene because it contrasts perfectly with Merle strolling in and demanding someone get him a drink while Connie doesn't ask but tells Michael that she's getting married.