Here's some links to other pages here before you read this information (which is now fairly old).
Merlin has been diagnosed with Auditory Neuropathy (AN). This condition is a form of hearing impairment in which the cochlear hair cells are present and either fully or partially functional, but the sound signal does not reach the auditory nerve and brain properly. So while Merlin is technically not "deaf" in the sense that he is not experiencing a soundless world, the AN condition will make it very difficult for him to learn to mimic sounds and thus acquire speech. Thus hearing aids are probably not helpful because the main problem people with AN report is a difficulty understanding speech, likely resulting from signal distortion - not from loss of signal intensity. Hearing aids merely provide amplification of sound signals; they do not fix distortion of the sound signal due to processing problems. Sometimes the improvement in the signal-to-noise ratio provided hy hearing aids and other assistive listening devices are helpful. Some people with AN are helped by a cochlear implant (CI).
Here's a computer simulation of what Merlin may be hearing, going from profound AN through moderate to mild AN to clear speech (taken from http://www.ucihs.uci.edu/hesp/Simulations/simulationsmain.htm)
There are two links, the first link is to a .mov file (Quicktime) the second link is the same sound file in .wav format, one of these should play for you.
AN is sometimes associated with premmie children and was first identified about 1991. Most of the earlier research materials are not as useful as articles published in the last few years.
The neural importance of the mechanisms that support our understanding of speech not yet well understood. Recent findings suggest that timing and synchronicity in firing of neurons in brain stem auditory pathways is important for understanding speech.
Children with auditory neuropathy have difficulty understanding speech although their cochlea and intelligence have minimal deficits.
Here's a fairly recent journal article on some AN research. Zeng his colleagues show that patients with AN have difficulty with timing-related perception but not intensity-related perception. They have difficulties with discriminating pitch at low frequencies, temporal integration, detecting gaps, detecting modulation in amplitude, perceiving sounds in the context of sounds that precede or follow, detecting signals in noise, detecting beating when sounds to the two ears differ slightly in frequency, and using interaural time differences for localizing sounds.
In particular, the abstract and introduction on pages 2 and 3, the comparison to other hearing disorders on pages 10 and 11 and the outline of a "test" before doing a cochlear implant (first paragraph on page 13) may be helpful in understanding what Merlin could be hearing.
At present, Merlin is a possible candidate for a CI although his progress with signing, and his speech development are being closely monitored before any decision is made.