help: it is 'file://localhost/', not 'file://local/'
The documentation has apparently always been wrong.
$ cat <<EOF >> $HGRCPATH
> [extensions]
> schemes=
>
> [schemes]
> l = http://localhost:$HGPORT/
> parts = http://{1}:$HGPORT/
> z = file:\$PWD/
> EOF
$ hg init test
$ cd test
$ echo a > a
$ hg ci -Am initial
adding a
$ hg serve -n test -p $HGPORT -d --pid-file=hg.pid -A access.log -E errors.log
$ cat hg.pid >> $DAEMON_PIDS
$ hg incoming l://
comparing with l://
searching for changes
no changes found
[1]
check that {1} syntax works
$ hg incoming --debug parts://localhost
using http://localhost:$HGPORT/
sending capabilities command
comparing with parts://localhost/
query 1; heads
sending batch command
searching for changes
all remote heads known locally
no changes found
[1]
check that paths are expanded
$ PWD=`pwd` hg incoming z://
comparing with z://
searching for changes
no changes found
[1]
errors
$ cat errors.log