Merckx cable routing issues
 

I was installing cables on an SLX Merckx and had trouble with the internal routing for the rear brake. The housing itself is too wide to fit into the frame. I'm not sure if it's supposed to be housed the whole way down or whether the entry point acts as a stop. But either way its too narrow for the housing.

I'm using a Jagwire cable kit. Are there narrower cable housings? Do I need a step down ferrule for it?

This is a new one for me.

http://i.imgur.com/jxJ6h6jl.jpg

You need cable casing end ferrules that reduce the diameter of the ends of the casing to fit against the edge of that small tube which functions as cable stops, as it goes into the top tube. I suspect that there is a metal tube brazed inside the top tube to bridge the two openings for the cable, so no need to feed in your cable casing into the top tube.

I'd agree with the above that you could probably use a specialized end ferrule however, I've seen bikes with both housings run through the frame, and with housing stops at the entry parts to the frame (and only the cable runs through the frame.)

If you look down into the hole, does it only have a tiny hole that only the cable could pass through? A few bikes I've seen actually use the hole (in the frame) as the ferrule.

Yes, there is thinner brake housing. You can get 4.5mm housing instead of the 5mm you're probably using.

My '89 Century is the same. I used wire strippers to take off the outer coating of the cable and it fits in there snugly. Outer cable does not feed all the way through.

I had no problems interal routing on top tup using the cable housing that came with a set of 9 spd ultegra brifters on my 89 miyata, but it appears the OP's housing is a bit bigger

Do not use ferrules. Housing of the appropriate diameter is the way to go. Ferrules will corrode and get stuck.