. I don't think that diff tool has changed since the black Visual SourceSafe days.
But there is a way to make your life so much nicer. I use WinMerge as the diff tool when in visual studio.
Follow this steps if you want to get rid of (some atleast) of the pains of merging code:
1. Download and install WinMerge
2. In Visual Studion go to Tools -> Options -> Source control ->Visual Studio Team Foundation Server and click on the Configure User Tools button.
3a. The arguments for compare is /e /x /s /wl /dl %6 /dr %7 %1 %2
3b. and for merge /e /s /x /ub /dl %6 /dr %7 %1 %2 %4
Now next time you do a merge diff or compare Visual studio will use WinMerge instead.