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 1
echo '[ui]' >> 1/.hg/hgrc
echo 'timeout = 10' >> 1/.hg/hgrc
echo foo > 1/foo
hg --cwd 1 ci -A -m foo
hg clone 1 2
hg clone 2 3
echo '[hooks]' >> 2/.hg/hgrc
echo 'changegroup.push = hg push -qf ../1' >> 2/.hg/hgrc
echo bar >> 3/foo
hg --cwd 3 ci -m bar
hg --cwd 3 push ../2