Second and this is really puzzling. Built in categories like settlements that have noticeable changes from the base categories got the additional snippets. However my custom category of Deity was not merged with the Pathfinder game system specific category of the same name. My category is completely unchanged and the PF category is no where to be found. This could be a problem if I ever try to import PF content that includes a deity.
That's not so puzzling to me. Just as Import/Export does not merge Topics based on name, but rather on a hidden internal Topic ID, the Categories also use hidden Category IDs to be unique. That's what allows you to have both the standard and your own version of a Category with the same names, in the end (such as Entity, and Entity (Local). The "(Local)" isn't part of the name per se.. just something RW shows to differentiate the two.
So... I would not expect Custom categories to merge with anything else. I believe this was one of the reasons that Rob encouraged people to stick to the standard Categories as much as possible.. because they would always be seen as something "custom" when mixing published and custom material.