Ref T12961. Fixes T4416. Currently, for observed Mercurial repositories, we build a working copy with pull -u (for "update").
This should be unnecessary, and we don't do it for hosted Mercurial repositories. We also stopped doing it years ago for Git repositories. We also don't clone Mercurial repositories with a working copy.
It's possible something has slipped through the cracks here so I'll hold this until after the release cut, but I believe there are no actual technical blockers here.