Typically, the pupil is built into the eye itself, and the entire eye is rotated. It's usually easiest to build them by pulling few points on the pole of the sphere. Here's a detailed tutorial on eyes. It's for Maya, but the steps are the same:
http://www.3dtotal.com/team/tutorial..._eyemod_01.asp
For your waistline, you can get rid of the seams by using the Vertex > Snap Together command to stitch the two halves. (Control-T is the shortcut for that one.) Select the two vertices you want to stitch, then press control-T. Looking at your wireframe, you may have to add a few extra verts to the lower half of the character. You can do this with Insert Vertex. When you're done stitching, click Object > Optimize Vertices to get rid of the duplicate vertices, and you should then have a smooth seam.
Merge simply combines two objects together; it doesn't change the geometry in any way. The Boolean operations on the Object menu can be used to combine geometry more in the way you suggest. However, the cleanest way build a shape is neither of these ways. I usually add geometry myself with the extrude tool. If I were building a character, for example, I might start with a 4x4 box for the chest and then extrude the bottom to form the waist, then again to make the pelvis, and so on.
You can find some general tutorials here:
http://www.inivis.com/tutorials.html