According to this guy: https://www.youtube.com/watch?v=dj4kNnj4FAQ
The answer is yes. Virtual textures, luman, nanite are meant to play together.
You don’t NEED to but it would be better for performance to use virtualization. As far as materials, you can still use master-materials, nanite doesn’t change that paradigm, but Substrate might when it becomes standard.
For now, you can still use your ‘regular’ material-tech on nanite with the usual caveats around WPO, etc, etc.
As far as merge, you should instead build Assemblies. This is basically merging for nanite since it can instance the entire assembly, and you can edit the assembly directly, post-creation so it seems ‘better’ on that point.
Nanite is really about topping-off on screen-cost so that triangle-count can grow and not grow the cost. Eventually, the nanite-clustering will cost you just-about a screen’s worth of detail and whatever you throw into the scene will be made to work within that constraint. It costs you more up-front, but ultimately will top-out to cost you less, much like a fixed-cost (which is insane when you think about it).
Also, nanite is for perfect-LODing, or as close as you can get. You don’t need to manually define LOD’s with the tech instead creatively-destroying the mesh as you get farther and farther away. This saves a lot of time.