Compare two sandboxes

I have a problem that I am sure some of you have already solved or know of a great program (that runs on windows XP) that solves it for you.

I often have 2 repositories that exist as two separate directories and wish to compare the two. Find out what files have different, removed or added between the two. For the files that are different I would like the capability to merge code back and forth between the two copies.

For example:
I and my buddy are working on the greatest TGE mod there ever was. I download the demo to my gold directory. After that I copy to my "work in progress directory" and he does the same. We both go off working on our tasks. After a few days we both get stuff up and running and decide we should merge our .cs files together. So I copy my stuff to "mystuff" directory and sub directories. He copies his stuff to "his stuff" and subdirectories. I run this tool and it something like:

Added files:
       door.cs
       hisAI.cs
       skin.jpg
       dog.dts
   Removed:
       bridge.dts
       door.dts
   Altered files:
       main.cs
       player.cs
etc.

I then could click on the various files and add them back (if they were removed) or load a merge tool to merge the changed lines of code over.

This sort of functionality would be also useful for open source projects where you would like to sync back to the currently downloaded head without trying to figure out what has changed manually.

Anyone know of a tool like this?

Thanks,