In my experience, yes. Any activities, interesting moments, email history, etc. do get combined / appended when you merge records.....both from the Marketo side and the SFDC side.
We don't use Demand Tools so I can't speak to that process, although since it basically works with SFDC data I don't assume it would be any different.
As with any big data cleanup projects, it would be a good idea to export / back up the data before you proceed just in case.