It doesn’t get anywhere near edit, let alone save & quit. The problem occurs because git is trying to launch Emacs inside an Emacs buffer:
emacs: Terminal type "dumb" is not powerful enough to run Emacs.
It lacks the ability to position the cursor.
If that is not the actual type of terminal you have,
use the Bourne shell command `TERM=... export TERM' (C-shell:
`setenv TERM ...') to specify the correct type.  It may be necessary
to do `unset TERMINFO' (C-shell: `unsetenv TERMINFO') as well.
error: There was a problem with the editor 'emacs -nw -q'.
Not committing merge; use 'git commit' to complete the merge.
(And I do not think changing the terminal type will actually help, as that is not the actual problem, I don’t think. The same thing happens, BTW, if you try to run `crontab -e` from within Emacs)

Hmm. Works fine in vi. 😎

Seriously though, I’d have thought it should work. Are you doing anything other than edit, save, quit?