Scientists have been studying this fascinating question for centuries. Mermaids are supposedly spawned like any other kind of fish. For the mermaid in this particular movie to experience sexual gratification with a male human, she would indeed have needed to transform her lower body into that of a human as well. Mermaids are incapable of such gratification.
These findings are all hypotheses, of course, until a mermaid can be captured and probed appropriately by respected institutions of science.