I have spotted the biggest bottleneck in "bdiff.c". Actually it was pretty easy to find after I recompiled the python interpreter and mercurial for profiling. In "bdiff.c" function "equatelines" allocates the minimum hash table size, which can lead to tons of collisions. I introduced an "overcommit" factor of 16, this is, I allocate 16 times more memory than the minimum value. Overcommiting 128 times does not improve the performance over the 16-times case.

"""
node.py - basic nodeid manipulation for mercurial

Copyright 2005, 2006 Matt Mackall <mpm@selenic.com>

This software may be used and distributed according to the terms
of the GNU General Public License, incorporated herein by reference.
"""

import binascii

nullrev = -1
nullid = "\0" * 20

# This ugly style has a noticeable effect in manifest parsing
hex = binascii.hexlify
bin = binascii.unhexlify

def short(node):
    return hex(node[:6])