gk007 said:
What are the actual problems of joining these two theories?
(I've heard various people say that the equations 'fail' or 'blow-up', but I want to know exactly what happens...)
Part of the problem is what to use for spacetime. To build a conventional quantum theory you need some preestablished spacetime geometry to put the fields/particles on. You can imagine choosing: it could be a classical 3D space with a separate time variable, or the standard flat (minkowski) space of special relativity, or some other prearranged geometric set-up.
But GR does not like to start with some predefined 4D geometry. The theory is about how geometry itself arises---and interacts dynamically with matter. So if you wanted to build a general relativistic QFT you would immediately confront this essential problem at the level of foundations.
There is more to say. Here's an introductory overview by one of the main people involved.
http://arxiv.org/abs/gr-qc/0604045 The PDF is free online.
This is a non-technical essay which was selected to be Chapter 1 in a book treating the problem you ask about---merging QM and GR.
The book includes chapters by string theorists as well as chapters by proponents of various non-string quantum gravity approaches--thirty-some experts in all. It was published in 2009 by Cambridge University Press, and is called
Approaches to Quantum Gravity: Towards a New Understanding of Space Time, and Matter
The book is an interesting document. If you know some string theory names you will recognize 4 of the authors: Joe Polchinski, Tom Banks, Gary Horowitz, Wati Taylor. Another of the chapters was written by Gerard 't Hooft. The authors are supposed to be considering the problem you mentioned: a merger of QM+GR, a truly general relativistic quantum field theory. In some sense this book should contain the answer to your question: "why is it hard". And it should contain the various ways that those who wrote the book are trying to overcome the problems.
But all I would especially recommend reading is Chapter 1, which is free online at that link I gave.
http://arxiv.org/abs/gr-qc/0604045
I think the author, Rovelli, presents the clearest understanding of the QG problem--although in this chapter he does not offer any specific solution.