Just my two cents here. I just ran into this with a friend when we were trying to merge some iTunes stuff as well.
I, too, come from the Linux/Windows world, and I even read the dialog. However, let's look at this case.
You have a bunch of music. Your old collection has some albums, and your new collection has others. There are no file overlaps, only folder names. Say you've got about 50 albums you're merging into a collection of hundreds, maybe thousands. Some of them have the same bands (so the subfolders exist) and some don't.
You drag the music folder over, but you see the following popup warning:
"An item named [foo] already exists in this location. Do you want to replace it with the one you're moving? Don't Replace/Stop/Replace"
Now, you definitely don't want to replace it, so you say "Don't Replace," which doesn't stop the process. It will go along. There's even a checkbox for "Apply this to all." I definitely don't want it to blow away existing folders, so "Don't Replace" makes sense.
Then move starts, and you see files merrily going over. When it's done, you then delete the old files on the other drive, thinking the move/copy happened. When you check later, oh no!, many of the files aren't there! What happened?
So, how exactly was it clear that "Don't Replace" means "Don't Move at All?" It said [foo] not [foo and all things contained]. I mean, I didn't expect it to replace the folder, I expected it to copy the stuff to the folder. Plus, when it's asking about replacing a directory, I also would figure that if you say "Don't Replace," it won't replace the folder (which I don't want), but it will recurse into it and put stuff there that wasn't (which is exactly what someone would be trying to do copying/moving files with identical folder names), yes?
And as far as the mv/move command, at least under linux if you do that, it just bails, no choice of overwriting, and it's impossible to blow away a folder that way. It stops dead in its tracks. You know that there's a problem, and you're forced to use 'cp -r' or something.
BTW, this could equally apply to photos, video, or other file types, so there are plenty of cases I could think of where this would come up and you wouldn't use another app to manage the files.