On win98 os.path.expanuser('~') does not result in a useable directory. The MSDN recommendation for user specific directories is the use of shell.ShGetSpecialFolder, so use it. For details see: http://msdn.microsoft.com/library/default.asp?url=/library/en-us/shellcc/platform/shell/reference/functions/shgetspecialfolderpath.asp

#!/bin/sh

mkdir a
cd a
hg init
echo a > a
hg add a
hg commit -m test -d '0 0'

# Default operation
hg clone . ../b
cd ../b
cat a
hg verify

# No update
hg clone -U . ../c
cd ../c
cat a 2>/dev/null || echo "a not present"
hg verify

# Default destination
mkdir ../d
cd ../d
hg clone ../a
cd a
hg cat a