Give ssh a better chance of working on Windows.
Switch the type of quotes used for the remote command.
Open the pipe in binary mode.
#!/bin/sh
set -e
mkdir test
cd test
echo foo>foo
hg init
hg addremove
hg commit -m "1"
hg verify
hg clone . ../branch
cd ../branch
hg co
echo bar>>foo
hg commit -m "2"
cd ../test
hg pull ../branch
hg verify
hg co
cat foo
hg manifest