CRM 2011 Email template for custom entity

Hi

Basically one of our custom workflow code (c#) creates an email activity and I want to use an Email template or Mail Merge Template for the body/subject text  instead of using a hard-code text. 

So, I want to create an email template for a custom entity but found that we cannot create an Email Template for a custom entity, Is that correct ?

 Then I changed my mind to create Mail Merge Template but again understood that we cannot use/refer that in the custom workflow code, Is that correct?

Now, I am thinking of storing the subject/body text in a lookup entity and merge the required text in the custom workflow code, but I don’t like this approach.

Is there any other way to handle this?

Regards

MSK