I'm not sure how many files you're talking about here but it sounds like you might be better having version 2 of the vendor software in a separate repository (or branch) and adding what you need from that to your trunk manually - depending on the changes you want. If you don't want a lot of the v1 files left after the merge you'll either need to exclude those in the first place or remove them after the merge manually I'm afraid.
Right, okay - to be honest I'm still trying to figure out what you're wanting to do. When you get version 2 of this code, are you checking this out from another repository? If so you'll have the log of all the changes the developers made to it. Either way, just to make sure - is it that you want to compare this to your own code from the v1 tag and then merge the two?
Searching the net, one of the terms used is vendor branching. I used to have it working with SmartSVN 5 and 6, but, appears different now, not sure why, terminology is different too, might be just doing something wrong. The while purpose of this is to have Subversion tell me, not to check myself. While this project has only a few thousand files, another project I work on has close to one hundred thousand files. Obviously, I am not going to look at their log to figure out what they changed. Nor would I want to manually integrate their changes. If the vendor has say a nice round 100,000 source files, and, I change 100 of them, obviously, I want to take my changes and add them to their source, not the other way. if you are not familiar with vendor branching, you cannot help me, it's too hard to explain. I will have to just keep trying different techniques in SmartSVN until I can get it to work.