Consider yourself lucky to still have Mail Merge at all. It's missing from the new version of iWork apps.
No, there's no character limit if you know how to deal with large strings, and those problems don't begin until you have 255 characters or more. Your problem with medium length strings is likely to be in the Pages document.
What happens if you just type over the link with 15 characters or more?
Yeah I know I'm lucky in that I still have mail merge. I'm resisting using Microsoft Office but I tell you - it's getting more attractive by the minute !
Sadly, simply typing over the field produces the same result. Every time I exceed the 14 characters the spacing suddently leaps and the entry goes over two lines - like I said - ruining the whole mail merge document.
I'll keep working at it. I've found a work around but it's definitely not a solution and not something that you want to use regularly so forgive me but I'm not even going to descibe it here!