Damage Type Precedence

Say a Dervish is wielding an Icy Scythe of Fortitude. Now he/she uses [[Avatar of Melandru]. It says he/she now deals earth damage instead of ice while the form is active. But what if he/she then uses [[heart of holy flame]? Now what is his/her damage type? Is it Earth or Holy? Which takes precedence and why?

Whichever effect is last in the damage calculation. Read up on the damage formula, or just test it. Usually, it is determined by which effect was last applied.

In your case, holy should be the damage type.

With very few exceptions, all effects in GW are handled First-In-First-Out. In your example you end up with holy damage because it's the last one applied.