Ah...so Merlin could very well have lived in what is today modern-day Scotland and still have been Welsh (which much tradition says he is).
As your description implies, he most likely would certainly not have been "Scottish".
‘Welsh’ was the Anglo-Saxon word for ‘stranger’, which is what the Germanic invaders called the native Britons. The Britons were pushed west into Wales and Cornwall, and south to Brittany (Armorica). At the time of the Battle of Badon Hill, the Anglo-Saxon invasion was about half completed.