I just ran into the same problem running Hibernate 4.1.7.Final
After reverting back to 3.6.10.Final the problem is gone again.

Problem: The IllegalStateException( "An entity copy was already assigned to a different entity." ) is thrown, but I was not able to track down the exact situations in which it happens.

My logic that uses hibernate gets a modified disconnected instance from a client over the network, then loads the current state of this instance from the database using hibernate by supplying the primary id of the instance. After a few checks the modified version from the client is passed to the merge() function. This sometimes works as it does with hibernate 3.6. but sometimes fails with the described exception.