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

set -e

mkdir test
cd test
echo foo>foo
hg init
hg addremove
hg commit -m "1"
hg verify

hg clone . ../branch
cd ../branch
hg co
echo bar>>foo
hg commit -m "2"

cd ../test
hg pull ../branch
hg verify
hg co
cat foo
hg manifest