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
hg init repo
cd repo
touch foo
hg ci -Am 'add foo'
hg up -C null
# this should be stored as a delta against rev 0
echo foo bar baz > foo
hg ci -Am 'add foo again'
hg debugindex .hg/store/data/foo.i