Also note that it would probably be a bad idea to actually *use* this support 
much until most mercurial users were using a version of Python that includes 
the xz support.

If you've got a large repository or a big bundle, it would certainly not hurt 
to offer it as an xz-compresed bundle, as long as that wasn't the only way to 
get it. On the other hand, it probably wouldn't be a good choice for sending 
changes to a mailing list until at least a couple of Python releases later.

See http://bugs.python.org/issue6715 (xz compressor support) for the
corresponding entry in Python's tracker.

Deferred until Python supports xz

Not likely to happen until Python supports it natively, as it does for bzip2 and
gzip. Until then, you can create uncompressed bundles and compress them with lzma.

It would be nice if |hg bundle| supported LZMA compression in addition to the
current options.

LZMA is now in the public domain (see http://en.wikipedia.org/wiki/Lzma ) and
generally compresses better than bzip2.