Thanks Nick; I didn't want to be the only one saying that. There is a fine line between asserting reasonable requirements for Windows users and being obstructionist and unhelpful, and I'm trying to stay on the former side :)
I haven't commented on this issue before because I can't really be helpful. I just don't understand why hg is being considered before it's Windows support is roughly equivalent to svn and cvs.
There has been some similar experience with the main repository for the Cocoa port of Scintilla which is in bzr on launchpad. Several times in that repository, files were checked in with wrong line ends making every line appear changed when looking through history. There are several causes for this including user error but bzr (and hg) should default to more helpful behaviour on text files.