Unfortunately, what you're trying to do is NOT possible. You were on the right track by trying to embed PostScript into the MS Word document, HOWEVER, the driver controls paper trays and thus overrides any tray selection when a print job is sent.
Basically, the print driver is treating the mail merge document as one single print job and is sending down PostScript code to manage the trays according to what is selected in the Print Dialog for that "one" job.
Apple engineering said that it would be very difficult to create PostScript code to work around this. Our only suggestion would be to see if other applications also handle mail merges as one large print job, or as individual ones.