How to Use WinMerge as the Diff tool for Mercurial

Here is how you can setup TortoiseHg to use WinMerge for visual diffs and 3-way merges (instead of using KDiff):

1. Open Mercurial.ini config file. On my WIN7 system, this file exists at C:\Users\MyUser\Mercurial.ini. If you are on an XP system, it's probably in C:\Documents and Settings\<your user name>\Mercurial.ini.
2. Add the following lines:
   [extdiff]
   cmd.winmerge = C:\Program Files (x86)\WinMerge\WinMergeU.exe
   opts.winmerge = /e /x /ub /wl
   
   [merge-tools]
   winmergeu.executable = C:\Program Files (x86)\WinMerge\WinMergeU.exe
   winmergeu.priority= 1
   winmergeu.fixeol=True
   winmergeu.checkchanged=True
   winmergeu.args= /e /ub /dl other /dr local $other $local $output
   winmergeu.gui=False
   winmergeu.binary=True
   
   [tortoisehg]
   vdiff = winmerge
3. Now run TortoiseHg's Global Settings tool. On the TortoiseHg tab, select winmerge for the Visual Diff Command, and winmergeu for the Three-way Merge Tool options, apply, close.

Sources:
http://superuser.com/questions/23576/how-to-use-winmerge-as-the-diff-tool-for-mercurial
http://stackoverflow.com/questions/2073543/use-winmerge-as-tortoisehg-merge-tool