Isssue2421 is a duplicate of this one.

Fixed by http://hg.intevation.org/mercurial/crew/rev/5096faaa280e
Benjamin Pollack <benjamin@bitquabit.com>
windows: handle spaces in path to Python (issue2074)

I've downloaded the latest Mercurial source and build and installed it on my 
Windows machine.

Python's Script folder is in my Path variable, but Mercurial's install 
generated hg.bat file calling hg:

%~dp0..\python "%~dp0hg" %*

This causes an error when Python is installed in a path containing spaces 
(e.g. "C:\Program Files\Python") -- it will try to call "C:\Program" with 
arguments "Files\Python\python ...")

I've fixed it in my install by quoting python:
"%~dp0..\python" "%~dp0hg" %*