What you should have is a master database and that should be your FTM-2005 name.ftw file on your local C drive. A lot of people have had duplicate entries after merging files so always make a backup first so that you can restore if things go wrong. You will need to seek advice on whether to upgrade to FTM-2008 or FTM-2009. I don't think there are many benefits in upgrading unless you have Windows Vista.
I've not heard of a dual relationship before but I think you mean an inter-marriage relationship, e.g. where first cousins marry.
If your father was adopted by his cousin then their relationship is still that of cousins.