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 test
cd test
echo foo>foo
hg init
hg addremove
hg commit -m 1
hg verify
hg serve -p 20059 -d --pid-file=hg.pid
cd ..

http_proxy= hg clone http://localhost:20059/ copy
cd copy
hg verify
hg co
cat foo
hg manifest
hg pull

kill `cat ../test/hg.pid`