Configure mercurial to use sourcegear diffmerge for merging
In your mercurial.ini file(i.e. $env:userprofile\mercurial.ini) specify...
[ui]
merge = vdiff
[extensions]
hgext.extdiff =
[extdiff]
cmd.vdiff = C:\Program Files\SourceGear\Common\DiffMerge\sgdm.exe
[merge-tools]
vdiff.executable = C:\Program Files\SourceGear\Common\DiffMerge\sgdm.exe
# vdiff.args = -merge -result=$output $local $base $other
vdiff.args = -merge -result=$output -t1="Local Version" -t2=$output -t3="Other Version" -caption=$output $local $base $other
vdiff.binary = False
vdiff.symlinks = False
vdiff.gui = True
vdiff.premerge = True
If you first want to verify that path...
test-path "C:\Program Files\SourceGear\Common\DiffMerge\sgdm.exe"