Steps to reproduce (might not be absolutely minimal, but works here):
bzr init a
cd a
echo hello > foo
bzr add
bzr commit -m 'first commit'
cd ..
bzr branch a b
cd b
mkdir bar
echo hello > bar/baz
bzr add
bzr commit -m 'added bar/baz'
cd ../a
bzr merge
bzr revert
Steps to reproduce (might not be absolutely minimal, but works here):
bzr init a
cd a
echo hello > foo
bzr add
bzr commit -m 'first commit'
cd ..
bzr branch a b
cd b
mkdir bar
echo hello > bar/baz
bzr add
bzr commit -m 'added bar/baz'
cd ../a
bzr merge
bzr revert
Observed result:
$ bzr st
unknown:
bar
The bar directory is empty.
Expected result: bzr revert should delete bar/.