In answer to your questions Gather_round.
Yes I agree with you that Ireland as a whole has really only three cities of any reasonable size (I'd throw in the Cork urban area also) but it doesn't take a city of over 500 thousand people to support a football team. Both NI and the Republic have a similar number of towns of over 25 thousand people (about 11 or 12 each by my count) which should be enough to support a club in an all Ireland league. Obvously bigger towns and cities can support more than one team so we could eventually end up having a large number of competitve teams spread around on both sides of the border. I agree that demographics is not the only probelm but to provide the financial support teams require to be competitve you need a decent sized urban area with a sizeable fan base. Rural areas cannot support large football clubs that are going to be competitive in Europe.
The number of decent sized towns or cities is more important as mentioned above and this could be effectively doubled by any such merger.
Initially Linfield may not be much stronger but surely a more competitive league that's better supported would in the long run ensure the bigger clubs like Linfield would reap the benefits over time. Other than the number of titles in the record books I don't see how being the dominant force every year in a league can be beneficial to any team.
As for TV money then I'd say it's a safe guess that all the clubs involved in such a merger would receive more income from TV coverage due to the extra interest any such merger would generate. Attendences I'm sure would also initally rise. It would be up to the clubs and the associations to ensure that this initial interest would be built upon.
Anyway as I said this is not the only problem and it is possible to have two separate leagues competing at a better level than currently is the case. Unfortunately I do believe the demographics in Ireland are a major obstacle.
Anyway it's all pie in the sky stuff at present though but who knows what may happen in the future with the Setanta cup now being a reality anything is possible.