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

hg init

echo "Is there an error message when trying to diff non-existing files?"
hg diff not found

echo "Is there an error message when trying to add non-existing files?"
hg add not found