We have two domains in separate forests and need to merge/migrate them. I believe a simple migration with ADMT will move all the local user profiles over, and will not be a problem. The potential problem is that all the users in domain2, have identical user accounts (same user/pass) in domain1 so that they can have exchange mailboxes.
If we do a migration with ADMT, will we have any issues since the users need to be merged, whereas computers and local profiles need to be migrated?
You won't have an issue with this. Each step of the migration can have a different action. You can migrate computers and merge users without issue.