Shane was a self-interested, murderous demon, and could not change, but Merle--the racist, sexist, violent criminal turns a corner before the end, thus the stereotype was melting
Shane was not, as he went along, anything like a "good guy," but I don't think "murderous demon" is a fair characterization.
Every thing he did was because he thought that was how he needed to be in the post-apocalyptic, post Rick, world. And, sometimes, he was right (the walker barn for example).
He became a villain but he was still a somewhat sympathetic one.
Dorian Thompson wrote:
Oh, Merle, Merle, Merle. We barely knew ye. I felt bad for Daryl, anyway. Seeing your big brother in that condition would rip your guts out. So to speak.
One of the best parts of that scene was that Daryl's reaction seemed as much about finally letting go and getting angry with his brother for the years of abuse.
He didn't "kill" zombie Merle silently or quickly like he did other walkers. He punched him repeatedly, threw him to the ground and repeatedly stabbed him in the face. His brother was one of the only zombies to whom he didn't show a form of mercy.