You no longer have to mess with the .ini file. As long as you have both TortoiseHG and WinMerge installed you will see it as an option in TortoiseHG Global Settings – TortoiseHG section – Three-way Merge Tool and Visual Diff Tool. It shows up as “winmergeu”. Banged my head against the wall for a couple hours before I found this; I must be blind.
WinMerge 2.12.4.0 Unicode
TortoiseHg 2.5.1
Mercurial 2.3.2