Mine simply works by right clicking the folder location where I pull to and there should be an option that pops up called "Git Extensions", if you highlight that there are quite a few options. If you select "Commit", it commits all of your custom changes to your local version. Then you can simply do the same again, and select "Pull" and it will retrieve the most recent version and won't overwrite your changes.
It should allow you to manually merge updates into files you have customized, yes. If you installed KDiff (I think its a standard part of the Git install, though I can't remember - it's been a while since I installed) then you can actually use that to merge, sort of like WinMerge/Beyond Compare.
Insanity, or maybe Voxpire, might have a better way or idea..but this has worked for me thusfar.