Server-side? Don't know - but client-side merging is not difficult (and implementations of it exists already now), so if this is a problem server-side, my personal recommendation would be to do merging only on the client side.
I've asked this after reading Anthony's message where he says:
(I think a nice efficient compromise method would be Patch-Step-Size: 8 8 4 4 4 4 2 2 1, which would only update a lg(diffs) each time you updated the packages file, and only require users to download and apply a maximum of lg(diffs) to get up to date)
As I understand that means old patches (8, 4...) are logically "merged" into one file on the server side... Did I understand it correctly?
-- With best regards, Vitaliy Filippov