Sadly, it does not.  :-(

Here's a bunch of info showing that it doesn't work on a Mercurial 1.2.1 with
the patch applied:

[11:08] svbu-mpi:~/hg % hg --debug clone
https://jsquyres@bitbucket.org/jsquyres/proxy-test
using https://bitbucket.org/jsquyres/proxy-test
proxying through http://proxy-sjc-2.cisco.com:80
http auth: user jsquyres, password not set
sending between command
abort: HTTP Error 400: Bad Request

Let's verify that the patch is applied:

[11:08] svbu-mpi:~/hg % where hg                                               
/opt/mercurial/1.2.1/bin/hg
[11:08] svbu-mpi:~/hg % grep _tunnel_host
/opt/mercurial/1.2.1/lib64/python2.3/site-packages/mercurial/keepalive.py
                if hasattr(req, '_tunnel_host') and req._tunnel_host:
                    h.set_tunnel(req._tunnel_host)
[11:08] svbu-mpi:~/hg % ls -l
/opt/mercurial/1.2.1/lib64/python2.3/site-packages/mercurial/keepalive.py*
-rw-r--r--  1 root root 22109 May  5 11:03
/opt/mercurial/1.2.1/lib64/python2.3/site-packages/mercurial/keepalive.py
-rw-r--r--  1 root root 24144 May  5 11:03
/opt/mercurial/1.2.1/lib64/python2.3/site-packages/mercurial/keepalive.pyc

Here's my Python version (RHEL4U4):

[11:08] svbu-mpi:~/hg % python -V
Python 2.3.4
[11:09] svbu-mpi:~/hg % 

Is there anything else I can send to help diagnose?