Start with a new MacBook Air running Lion. Configure it's address book to synchronize with MobileMe. The MobileMe contacts list has 374 items, synched from another Mac running Snow Leopard.
After invoking Sync on the MBA, all items are deleted from the MobileMe Contacts, and the MBA Address Book has just two entries: Apple, and the MBA user account.
This behavior is the same whether the user chooses Merge or Replace Data on This Machine.
The desired result is for the MBA to be updated with the 374 items in MobileMe.