I created a diff on a mercurial repository using smart quotes in the "Title" and "Summary" fields as well as in the content of a file being changed. Then on macOS, Windows (PowerShell), and Windows (cmd.exe) I was able to `patch` down the revision, make a modification, and `diff` the change back up to Phabricator, as well as `land` the change. I verified the commit and content looked correct on macOS as well as on Windows by using `nvim` which seems to properly detect and render the encoding, whereas mercurial displays the smart quotes and em-dashes with odd characters instead.
I did a grep through Arcanist codebase to find other places where `--encoding` might be specified for mercurial commands and could not find any. In the event that somehow this argument is added elsewhere I verified that multiple specifications of `--encoding utf-8` does not cause any issues and the later specification of `--encoding` appears to "win".
$ hg --encoding utf-8 --encoding utf-8 log -r tip
# prints out results in UTF-8 without issue
$ hg --encoding utf-8 log --encoding latin-1 -r tip
# prints out results in latin-1 without issue