So... first of all, for everyone who doesn't know yet, I'm now helping with Dogecoin development. The whys and hows are worth their own post, which I'll do later...There's been a lot of discussion today of Litecoin's Charlie Lee approaching Jackson Palmer (one of the Dogecoin founders) about Dogecoin switching to merged-mining with Litecoin. You can see one of the many posts on the topic on reddit at http://www.reddit.com/r/dogecoin/comments /22eprz/ltc_creator_charlie_lee_explains_his/The idea is that, as Namecoin can be mined as part of Bitcoin mining, so Dogecoin could be mined as a side-effect of Litecoin mining. There's a good introduction to the theory of how this works at http://bitcoin.stackexchange.com/questions/273/how-does-merged-mining-work for the curious. The benefit is that this would likely result in most DOGE and LTC miners both mining LTC together, effectively merging their hash rates. More hash rate makes it harder to perform a 51% attack on either coin. Good for us, good for Litecoin.
However, this also means mining Litecoin gives you "free" Dogecoin, so doesn't that devalue our Dogecoin? Worse, won't Litecoin miners just dump their Dogecoin onto the exchanges? Well, sort of, yes. Combining the hashrates also increases the difficulty, so effectively miners get less of each coin, but the other coin compensates them for their loss. Presumably both coins have miners who will exchange straight through to the other, and should in doing so balance the exchange rate between the two coins. Litecoin miners sell Doge for Litecoin, Dogecoin miners sell Lite for Dogecoin, the combined hashing rate for the two coins is incredible, everyone's happy.
Of course, it's not that simple. Doing so pegs Dogecoin to Litecoin; we can't exist without them, and anything that affects Litecoin affect Dogecoin. We're also destined to be the secondary coin, unless we hardfork yet again to de-merge (is there a world record for most forked coin?) Then there's the impact to our mining pools; most of them are much smaller than their Litecoin equivalents, and at high difficulty could struggle to get blocks at all. Most importantly, we're a coin bound by community; to many it's important not just to have Dogecoin, but that they're mining Dogecoin, and mining Litecoin to get Dogecoin just isn't the same.
So where does that leave us? Well, there's a lot of discussion still. So far there seems to be a majority against merged mining. Personally I'd favour finding something to hang on to and riding out the bumps while we adapt to ASICs, but that's not a popular opinion. Others are suggesting various PoW changes, and even proof-of-stake approaches (interaction between proof of stake and inflationary coins is a whole different problem of its own). For now, all I can say is discussion continues, and you're welcome to swing by #dogecoin-dev on Freenode if you'd care to join in.