I think we can't include "-X", because Mercurial won't print directories unless we enumerate files in them, so this will incorrectly hide directories which nest several levels deep without any files next to them. For example, I made a repository with just one file:

a/b/c/d/e/.../l/m

When browsing a/, we should see that b/ is a subdirectory. However, with the -X flag, it's not visible:

>>> orbital ~/repos/hg-deep $ hg status
A a/b/c/d/e/f/g/h/i/j/k/l/m
>>> orbital ~/repos/hg-deep $ hg locate -I ./a -X ./a/*/*/*
>>> orbital ~/repos/hg-deep $

Omitting the -X flag, we can see it:

>>> orbital ~/repos/hg-deep $ hg locate -I ./a
a/b/c/d/e/f/g/h/i/j/k/l/m

This is unfortunate because it means we have to do a lot of extra work at the root, but we could conceivably add caching to handle that case pretty easily.