Does anyone know if it's possible to merge only a portion of a chapter? If it's not, then can someone recommend affordable editing software to trim a chapter and save it back to the original movie source?

Hello and welcome to the forum. DVDFab's family of products is not really designed for the task you wish to accomplish. I would suggest one of the DVD creation/authoring programs: Intervideo's WinDVD Creator works well for me, but there are many others. DVDShrink might be able to do what you want, depending on the "save it back" part and how that needs to be accomplished to suit your needs. It does allow setting start and stop points with greater precision, down almost to the frame level.