Please, update mercurial version. Ebuild rename with "epatch" remove, works fine. http://selenic.com/pipermail/mercurial/2008-August/020753.html P.S. hg 1.0.1 has known crashes during "commit" operation. 1.0.2 fixed that
Can confirm install instructions (simply removing patch) & 1.0.2 works fine here, too.
Committed to CVS (...if only we'd use mercurial for portage...). Thanks for reporting!