This applies to TortoiseHg 2.4.2. Version 2.1.4 does not have this issue.
I'm going to give a way to reproduce the problem, it might be better:
1) Create a repository 2) Add a word document (e.g. wordfile.docx) with some content and commit 3) Create a named branch (e.g. Branch 1)and modify the word document, commit 4) Update to the default branch, modify the word document and commit 5) You end up with two branches, default and branch 1, with two versions of the same document 6) Try "Merge with local" (branch 1 with default) 7) Click on resolve conflicts, Resolve conflicts window shows 8) Use docdiff and click on Tool Resolve 9) An error windows shows for script merge-doc.js, line 92, char 9: "Error: This file could not be found. (C:\repo\wordfile)"
As you can see, the argument given to the script merge-doc.js is "wordfile" and it shall be "wordfile.docx".
If you print out the variable sBaseDoc, in line 44 of merge-doc.js, you can see that it is "wordfile" instead of "wordfile.docx". The remaining arguments seem to be fine, i.e. sMyDoc, sTheirDoc and sMergedDoc.
I hope this explanation is understandable. I attach a repository ready to be merged so you don't have to create one and a couple of screenshots.