man 5 hgrc implied you need to use external tools to do CRLF translation.
This is no longer true; win32text provides a much better in-process alternative.
#!/bin/sh
echo "[extensions]" >> $HGRCPATH
echo "imerge=" >> $HGRCPATH
HGMERGE=true
export HGMERGE
hg init base
cd base
echo foo > foo
echo bar > bar
hg ci -Am0 -d '0 0'
hg mv foo foo2
echo foo >> foo2
hg ci -m1 -d '1 0'
hg up -C 0
echo bar >> foo
echo bar >> bar
hg ci -m2 -d '2 0'
echo % start imerge
hg imerge
cat foo2
cat bar
echo % status -v
hg -v imerge st
echo % next
hg imerge next
echo % merge next
hg --traceback imerge
echo % unresolve
hg imerge unres foo
echo % merge foo
hg imerge merge foo
echo % save
echo foo > foo2
hg imerge save ../savedmerge
echo % load
hg up -C 0
hg imerge --traceback load ../savedmerge
cat foo2
hg ci -m'merged' -d '3 0'
hg tip -v
echo % nothing to merge -- tip
hg imerge
hg up 0
echo % nothing to merge
hg imerge
exit 0