I would probably restrict it to camp, since players need to have time to take a breath and relax in order to be cheered up. I suppose it could make sense if there was a big lull during the adventure phase it would also be okay, but then the GM probably isn’t pushing hard enough
Ob 2 or 3? The healer obstacle for overcoming Sick is Ob 4 and Injured is Ob 3 whereas the recovery is Ob 3 and 4 respectively. So it seems like they made Healer a little easier for Injured than recovery, but with the added risk of a really bad condition, and Sick because it’s more difficult with relation to that skill. I don’t think merrymaking would have that same awful failure condition (permenantly lowering will because a halfling made the wrong sort of jest seems a bit harsh), so I would at least make the obstacle the same if not harder than the recovery difficulty. If you were trying to recover from Afraid, I might allow it but I’d make it at least Ob 4 because it’s not as immediately appropriate to the skill.
I agree with jovialbard. It should happen in camp – preferably you want to have a little party, or at least some drink and some songs. The halfling has to be able to make merry! Set the obstacle as you see fit – jovialbard’s suggestion is a good one. I tend to set it based on the number of people participating in the merrymaking. It’s easier to make merry with a group than with just one or two. This means that Merrymaking is great when you’ve got a bunch of angry people in the party!