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When there is no remote Mercurial URI, `hg paths default` exits with an error code
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This sequence:

$ hg init x
$ cd x
x/ $ hg commit ...
x/ $ arc diff

...should work, but we call hg paths default which exits with an error code (and the message "not found!"), at least under Windows 10 with Mercurial 4.7+11.

This may be a version difference; this workflow is unusual.