Though it would be a paradox given that Merlin defended muggles, I think he could have been Slytherin's teacher: There is a little known version in which Merlin is born from the union of a woman and a Sylph, destined to be the saviour of the old way and the protector of pagan gods against the spread of Christianity in Great Britain.
Merlin could have been the teacher of one or several of the founders. Merlin's legend goes back as far as the 6th century, several centuries before Hogwarts was built. The way I see see it, it could have been the other way around. That being said, I think Rowling's version of Merlin must be based on Geoffrey of Monmouth's work, which is why she would say Merlin was a student at Hogwarts.
He eventually joined the court of King Arthur and used his tremendous magical skills to help build the kingdom of Camelot where muggles and wizards could work and live together helping each other. According to canon, Merlin studied at Hogwarts.
