See this issue reported at mercurial:
It comes down to this I believe:
buildout / MercurialRecipe calls mercurial.commands.clone with a source that isn't a string and no branch specified. That doesn't work in Mercurial 1.6. Applications that call Mercurial directly has to be kept uptodate as Mercurial evolves.
buildout / MercurialRecipe apparently doesn't support Mercurial 1.6, so try to update them and file a bug there if it doesn't work.