Closed. Thanks to kiilerix and tonfa for the quick responses and apologies
for not closing this sooner, but I ran into some other issues that I haven't
had time to work on since...

Lets close this. The easy way is to call commands via dispatch.run() this 
will correctly handle default arguments.

Long term we can think about doing proper typing of arguement.

If you use prefix = '', it will work.

I guess the long term fix is to link the defaults used in the command table 
and the defaults given by opts.get().

I.e. if the default for prefix is '', opts.get('prefix') should return ''.

Mercurial uses a kind of duck typing for these 'commands' functions. Some
opts values are mandatory. There is no explicit documentation of what is
mandatory, but if it is mandatory then it is mandatory.

The archive command gives 'prefix' a default value of "". You should do the
same.

I installed 1.4.2 on Mac OS via macports.

However, I cannot seem to make commands.archive() work for 'files' mode,
whereas the command 'hg archive' and archival.archive() both work fine.

It's just that these lines of code from commands.py (lines 171-179) seem
very puzzling:

    prefix = opts.get('prefix') # This could very well be None
    if dest == '-': # Not relevant for 'files' mode
        # ...deleted...
    # prefix can still be None (moreover, it *should* be none for 'files')
    # Now, make_filename() will do a len(None) in a moment
    prefix = cmdutil.make_filename(repo, prefix, node)
    # So we don't get here
    archival.archive(repo, dest, node, kind, not opts.get('no_decode'),
                     matchfn, prefix)

Apologies if this is my mistake.