I agree with the others - it sounds a little pretentious if you use it. Interestingly, I've found that the word has also drifted into Turkish (mersi) with a similar subtext.

It's done at French restaurants. It would seem pretentious to do it often. The only place I could see it happening is in Quebec where there is a 50/50 chance you are speaking to either a Francophone or an Anglophone and people say things like "Bonjour/Hi." Or on written material in Canada, most has to be printed in the two official languages, so Thank You/Merci shows up in a lot of places. The most often used French phrase in English is "Bon Apetit." But it's like saying Chow (Italian), anything where the subtitles drop out during a movie. (during the Bicycle Thieves, Chow is not translated from the Italian in the English Subtitles) would seem fair game. Things like Aloha, or Sa ya na ra (Japanese for goodbye). You will know if people don't understand it. In Canada people will know, of course, because everyone knows at least enough French to understand hello, goodbye, and thank you. However, as George Orwell said "Never use a foreign phrase, a scientific word, or a jargon word if you can think of an everyday English equivalent." At a nice restaurant you can say Merci, it fits with the Bon Apetitt vibe. In addition you can say cheers in any language you want. Then it's more about the gesture and less about the words, and it gives a kind of universalist inclusionary felling, to have one person say cheers, another slainte, and another a votre sante.

Yes, it's the French word for "thank you", but I've never heard anyone say it in an English conversation (that doesn't mean it doesn't happen, though). Are you sure it wasn't "mercy"? It can be used as an interjection to show surprise. For example: Mercy! That sure is a long way from here!

You could, but it might seem pretentious if done often.