I have no problem if they combine streaming services as long as it works to the customer's benefit too. If I don't have a drop in content and an increase in price, and I get the shows and movies I want, I don't see a problem. If there's a merger and it's a monopoly, that's a negative.
Yes, Netflix should combine its streaming service with Amazon. The movie offerings at Amazon Prime is currently rather paltry. Netflix has more titles, but it still lacks width. Combining the two would create a more complete movie catalog for streaming customers. From a business perspective, it would remove a lot of redundancy while utilizing the same technical backbone. As a result, the subscription cost should be able to stay low while increasing profitability for the company.
Business services such as server space is simply one of Amazon's business arms. They host the websites and streaming data for countless companies. They provide a service that Netflix is using, that is all. Should Amazon merge with all the other businesses they host? No. Just because Netflix and Amazon Prime overlap in the services they provide does not make this any more true.
In the free market, companies need competition or they tend to slack off, meaning that service suffers. (We've all got horror stories about Comcast, don't we?) Although from a consumer standpoint it would be nice to get all of the media from one service, doing so would greatly diminish the need for Netflix to continue innovating. If they had all the media from the beginning, they wouldn't be making awesome shows such as Daredevil and Stranger Things!