I've seen several of these errors "cmdserver: timed out while reading..." today, when I tried to commit my code using an in-process Python hook. After I restarted TortoiseHG twice (!), it worked ok again. It seemed to hang on ui.promptchoice. Not sure what triggered it.
Environment: Windows 7, 64-bit TortoiseHG 3.1.2 in-process Python commithook, which is interactive (ui.promptchoice). Extensions: eol mercurial_keyring 0.6.2 (in commit hook) jira-python 0.32 (in commit hook)
Cannot run the hook as a python command, as t is not interactive in that case.