query that worked in 8.1 not working in 8.4

We recently upgraded postgres from 8.1 to 8.4.

One of our queries stopped working and after some digging I've narrowed
the problem down to this:

table structure of interest:

merchant_set
 merchant_set_id

merchant
 merchant_id
 merchant_set_id

customer
 customer_id
 merchant_set_id

-- failure (count=1)
-- note: merchant_set.merchant_set_id in ...
select
    count(customer.customer_id)
from
    acquire.customer customer
    inner join entity_setup.merchant_set merchant_set on
        (customer.merchant_set_id = merchant_set.merchant_set_id
        and merchant_set.merchant_set_id in (
            select merchant_set_id
            from entity_setup.merchant merchant
            where merchant.merchant_id in (4,8,85,67)))
where
    customer.merchant_set_id = 2;

-- success (count=3562)
-- note: customer.merchant_set_id in ...
select
    count(customer.customer_id)
from
    acquire.customer customer
    inner join entity_setup.merchant_set merchant_set on
        (customer.merchant_set_id = merchant_set.merchant_set_id
        and customer.merchant_set_id in (
            select merchant_set_id
            from entity_setup.merchant merchant
            where merchant.merchant_id in (4,8,85,67)))
where
    customer.merchant_set_id = 2;

Explain for query 1 (failure):
"Aggregate  (cost=5.23..5.24 rows=1 width=4) (actual time=0.161..0.161
rows=1 loops=1)"
"  Output: count(customer.customer_id)"
"  ->  Nested Loop Semi Join  (cost=3.23..5.22 rows=1 width=4) (actual
time=0.140..0.153 rows=1 loops=1)"
"        Output: customer.customer_id"
"        ->  Seq Scan on merchant_set  (cost=0.00..1.82 rows=1 width=4)
(actual time=0.034..0.045 rows=1 loops=1)"
"              Output: merchant_set.merchant_set_id, ..."
"              Filter: (merchant_set_id = 2)"
"        ->  Nested Loop  (cost=3.23..266.07 rows=3562 width=12) (actual
time=0.101..0.101 rows=1 loops=1)"
"              Output: customer.customer_id, customer.merchant_set_id,
merchant.merchant_set_id"
"              ->  HashAggregate  (cost=3.23..3.24 rows=1 width=4)
(actual time=0.081..0.081 rows=1 loops=1)"
"                    Output: merchant.merchant_set_id"
"                    ->  Seq Scan on merchant  (cost=0.00..3.23 rows=1
width=4) (actual time=0.039..0.064 rows=2 loops=1)"
"                          Output: merchant.merchant_id, ... ,
merchant.merchant_set_id, ..."
"                          Filter: ((merchant_set_id = 2) AND
(merchant_id = ANY ('{4,8,85,67}'::integer[])))"
"              ->  Seq Scan on customer  (cost=0.00..227.21 rows=3562
width=8) (actual time=0.015..0.015 rows=1 loops=1)"
"                    Output: customer.customer_id, ... ,
customer.merchant_set_id"
"                    Filter: (customer.merchant_set_id = 2)"
"Total runtime: 0.318 ms"

Explain for query 2 (success):
"Aggregate  (cost=312.42..312.43 rows=1 width=4) (actual
time=17.442..17.442 rows=1 loops=1)"
"  Output: count(customer.customer_id)"
"  ->  Nested Loop  (cost=3.23..303.51 rows=3562 width=4) (actual
time=0.140..15.179 rows=3562 loops=1)"
"        Output: customer.customer_id"
"        ->  Seq Scan on merchant_set  (cost=0.00..1.82 rows=1 width=4)
(actual time=0.035..0.049 rows=1 loops=1)"
"              Output: merchant_set.merchant_set_id, ..."
"              Filter: (merchant_set_id = 2)"
"        ->  Nested Loop  (cost=3.23..266.07 rows=3562 width=8) (actual
time=0.101..11.144 rows=3562 loops=1)"
"              Output: customer.customer_id, customer.merchant_set_id"
"              ->  HashAggregate  (cost=3.23..3.24 rows=1 width=4)
(actual time=0.082..0.085 rows=1 loops=1)"
"                    Output: merchant.merchant_set_id"
"                    ->  Seq Scan on merchant  (cost=0.00..3.23 rows=1
width=4) (actual time=0.038..0.064 rows=2 loops=1)"
"                          Output: merchant.merchant_id, ... ,
merchant.merchant_set_id, ..."
"                          Filter: ((merchant_set_id = 2) AND
(merchant_id = ANY ('{4,8,85,67}'::integer[])))"
"              ->  Seq Scan on customer  (cost=0.00..227.21 rows=3562
width=8) (actual time=0.015..6.901 rows=3562 loops=1)"
"                    Output: customer.customer_id, ... ,
customer.merchant_set_id"
"                    Filter: (customer.merchant_set_id = 2)"
"Total runtime: 17.610 ms"

Notes:
1. The real query gets information from customer & merchant_set so both
tables are necessary. The query to merchant is a security filter.
2. I have fixed this query by dropping the subquery to merchant, and
inner joining to merchant directly. This forces me to add a group by so
customers are not duplicated which isn't as elegant as the original query.

I want to understand why the first version used to work with 8.1 and no
longer works with 8.4. Is this bad sql and I was getting lucky before or
is postgres making a bad decision in the latest release?