AmbiguousCommand is raised too soon. Right now, hg raises AmbiguousCommand as soon as it finds two commands/aliases that start with the substring it's searching for, even though it may still find a full match later on. This is a bit hard to hit on purpose, because hg checks the list of commands in whatever order is returned by table.keys(), which will change when you add an alias to a command. You should be able to hit it by adding an alias "u" to the "identify" command - not that that makes a lot of sense...

#!/bin/sh

hg init

cat > .hg/hgrc <<EOF
[encode]
*.gz = gunzip

[decode]
*.gz = gzip

EOF

echo "this is a test" | gzip > a.gz
hg add a.gz
hg ci -m "test" -d "0 0"
echo %% no changes
hg status
touch a.gz

echo %% no changes
hg status

echo %% uncompressed contents in repo
hg debugdata .hg/data/a.gz.d 0

echo %% uncompress our working dir copy
gunzip < a.gz

rm a.gz
hg co

echo %% uncompress our new working dir copy
gunzip < a.gz