This issue has been fixed in Simulink 6.0 (R14). If you are using a previous version, read the following:
There is a bug in Simulink 5.0 (R13) that causes Simulink to encounter an infinite loop during the dimension propagation step of the model update phase. To work around this issue, place Signal Specification blocks (from Simulink/Signal Attributes library) at the inputs and outputs of the Merge block and explicitly specify the dimensions of the signals. The attached model (example.mdl) illustrates the changes proposed above.
