If I join the circle faction, I would get better drops but I cannot sell those drops on the auction house?
Correct. Items dropped as a result of benefits from the Circle of Fortune will have a Rank Requirement on them and thus cannot be traded. In fact, all items dropped while in Circle of Fortune cannot be traded and this is indicated on the items.
If I join the merchants faction, I can still farm for gear but the chance for great gear is a lot lower than the circle folks?
Yes, MG players will have a lower drop chance compared to CoF players that have ranked up to at least Rank 3 or higher.
Can circle faction folks BUY from the Auction house?
No, CoF players cannot interact with the Bazaar or initiate player-to-player trades. However, CoF players, MG players or factionless players can still Gift items to other players in their party provided they were in the sam...