Is there any free software that can recognize and classify sounds?
The audio feature extraction libraries given above could be a good start, with some caveats:


The features you need for this task are plain MFCCs, so most of those libraries are totally overkill since they also extract features which are more meaningful in a musical context. 
Some of those libraries have been designed for offline analysis (processing a pre-recorded file rather than an ongoing stream of audio buffers). Your application in home-automation suggests that you want something capable of producing on-the-fly results as ambient audio is recorded.
None of those libraries actually address the very problem of recognizing sounds ; they just extract audio features upon which classification can be performed, so you need to post-process their output with machine learning software - using a model previously trained on examples of each class of signals you want to discriminate.


You'll end up having less plumbing to do if you use a speech recognition toolbox like HTK or Sphinx. HTK is generic enough for your task - it offers you both feature extraction and recognition/classification with HMM (a very common machine learning technique not only used for speech recognition but also for audio categorization in video analysis), and has extensions for on the fly recognition.

From what I remember, the MERL system you mention, and pretty much every work they did on audio for multimedia document analysis, is based on HMMs on the MPEG-7 audio descriptors.