I disagree. He's making Merle out to be an inside man for his own purposes, but everything he said in the pit was true. He said Merle was a traitor and that Merle had brought the attackers there.
Merle was a traitor for lying about Michonne (which the Governor discovered the hard way). And Merle did bring the attackers down on them by failing to kill Michonne and by taking the others prisoner. (Despite the fact that the Governor was okay with that too.)
That's the key point: the Governor is--among other negative things--a hypocrite; he was okay with Merle taking prisoners (who were armed, and cleaned up enough to suggest they are doing well, which--in that world--would mean another protected location).
Adding to that, he was fine with planning to attack the prison, never stopping to consider that Maggie could have lied about the numbers, and he was clueless about her group's firepower. He was willing to walk into a situation that has the chance to go south, and lead vengeful survivors right back to Woodbury, yet he blames Merle for his latest troubles?
I am a little unclear, however, on exactly how he knew Daryl was Merle's brother.
I think the only plausible explanation is that Daryl--knowing that Merle is there--revealed his identity off screen, as a way of protecting himself from harm.
Anyone catch the preview's quick cut of Beth planting (what seemed to be) a tender kiss on Rick?
Uh-oh....father vs. son....