Yes you can. I've used it with Word and PowerPoint. You will need Office 2010 client apps and SharePoint 2010 foundation at least. You must also allow editing without checking out on the document library.
It's quite cool, you can mark regions as 'locked' so no-one can change them and you can see what other people have changed every time you save your changes to the server. You also get to see who's working on the document from the Office app. The merging happens on SharePoint 2010.