Yes it can.
eMailMerge Std Version 2.x / eMailMerge Pro version 2.x
While selecting contact source in Wizard, check the check box to include public folders.
eMailMerge Std Version 1.x / eMailMerge Pro version 1.x
At step 2 of the eMailMerge Wizard click the Choose another Folder button and use the
screen that opens to select the folder that you want.