UV editor stitching

I have a mesh that has partly stitched UVs, meaning no seperate UV islands. The UVs are stitched by one or two vertices and I am trying to stitch remaining multiple vertices on the borders together. Seems Stitch command wont work for this even though it identifies correctly the vertex pairs (but marks them red, I think its because they are now part of the same island-remember one or two vertices are connected). The merge command just collapses the vertices. Is the one-by-one (two-by-two) merge only way to stitch borders?

you will get more help with some screenshots or better still a blend showing your problem

Here is the example blend.

http://www.pasteall.org/blend/22671

Here is a screenshot. Its a simple case, here stitch correctly identifies vertices that form a seam, but refuses to stitch them. My guess is because they are part of the same UV island, could be wrong though.