When you:
hg clone http://user:pass@domain.com/repo.hg
...Mercurial used to store the password in the `paths` for the repository, and (apparently) used to be able to `hg pull` without additional changes.
In recent versions of Mercurial, the password is not stored, so the `hg pull` fails. Adding the password to the file explicitly also reportedly does not work.
The easiest fix is probably to add an `[auth]` section to `.hg/hgrc`, per instructions like this:
http://stackoverflow.com/questions/2584407/how-to-save-username-and-password-with-mercurial