I'm having a similar problem just trying to update with no merges. I have 3 locally modified files, two are checked out, no conflicts.
This prevents me from updating the rest of the data, so I can't test my changes against the latest.
It seems to want me to checkin first and then update, which seems entirely backwards to me and very frustrating.
I had a similar problem when I started using SCM a few days ago - spent all day modifying 20 files, tried to update, somehow ended up with 522 modifications and 3 mergelists which I eventually had to checkin en masse because I could not figure o