git bug: moved file with local unstaged changes are lost during merge

What steps will reproduce the problem?
git init
echo "initial checkin" >> readme
git add readme
git commit -m "inital checkin"
git branch b1
git checkout b1
echo "b1" >> readme
git add readme
git commit -m "b1 readme"
git checkout master
git mv readme readme_master
git ci -m "moved readme"
echo "master" >> readme_master
git merge b1

What is the expected output? What do you see instead?
I expect to have git prevent the merge due to local changes to the
file.  Instead it overwrites the file (erasing the local modification
"master") and you end up with:
cat readme_master
initial readme
b1

What version of the product are you using? On what operating system?
Reproduced on 1.7.9.6 and from the git-core repo 1.7.10.128.g7945c.
This is on ubuntu 10.04.

Please provide any additional information below.

This problem only seems to occur after you check in the move, then
make local modifications, then do the merge.

-- 
---------------
Joe Angell
cell: (720) 260-2190