System legacy binaries/path problem. Went to http://www.sunfreeware.com/ ,
pkgadd'd diffutils-2.8.1 and rcs-5.7, and we're good to go.

$ hg debuginstall
Checking encoding (ISO8859-1)...
Checking extensions...
Checking templates...
Checking patch...
Checking merge helper...
Checking commit editor...
Checking username...
No problems detected

Thank you for the help!

Do you have ui.merge set to something non-default?  If yes, what is it?

Can you copy/paste the output of "hg debugconfig | fgrep ui." here?

$ hg debugconfig | fgrep ui.
ui.merge=/usr/local/bin/gpyfm
ui.username=keramida
$

I wasn't sure where to obtain crew, but I installed
http://www.selenic.com/mercurial-snapshot.tar.gz ('mercurial-3b081f2a77b2') and
now receive:

$ hg debuginstall
Checking encoding (ISO8859-1)...
Checking extensions...
Checking templates...
Checking patch...
Checking merge helper...
automatic merge failed! Exiting.
merge failed
 Got unexpected merge error 256!
 Got unexpected merge results!
 (your merge helper may have the wrong argument order)
 Result: '1\n2\n3\ninsert\n4\n'
Checking commit editor...
Checking username...
2 problems detected, please check your install!

This has been fixed in "crew" with changeset
452d171a1b39928970c302b20b4c9eb5e36f9296

Can you please check with an installation of Mercurial from the Crew Repository,
that this is indeed the case?  I just ran "hg debuginstall" on a Solaris 10
Update 3 installation, and it seems to work fine now.

bash-3.00# python -V
Python 2.4.2
bash-3.00# echo $PYTHONPATH
/usr/local/lib/python2.4/site-packages
bash-3.00# uname -a
SunOS club 5.10 Generic_118822-08 sun4u sparc SUNW,Sun-Fire-V440
bash-3.00# hg debuginstall
Checking encoding (ISO8859-1)...
Checking extensions...
Checking templates...
Checking patch...
Checking merge helper...
automatic merge failed! Exiting.
merge failed
 got unexpected merge error 256!** unknown exception encountered, details follow
** report bug details to http://www.selenic.com/mercurial/bts
** or mercurial@selenic.com
** Mercurial Distributed SCM (version 0.9.4)
Traceback (most recent call last):
  File "/usr/local/bin/hg", line 11, in ?
    mercurial.commands.run()
  File "/usr/local/lib/python2.4/site-packages/mercurial/commands.py", line
3110, in run
    sys.exit(dispatch(sys.argv[1:], argv0=sys.argv[0]))
  File "/usr/local/lib/python2.4/site-packages/mercurial/commands.py", line
3107, in dispatch
    return cmdutil.runcatch(u, args, argv0=argv0)
  File "/usr/local/lib/python2.4/site-packages/mercurial/cmdutil.py", line 37,
in runcatch
    return dispatch(ui, args, argv0=argv0)
  File "/usr/local/lib/python2.4/site-packages/mercurial/cmdutil.py", line 364,
in dispatch
    ret = runcommand(ui, options, cmd, d)
  File "/usr/local/lib/python2.4/site-packages/mercurial/cmdutil.py", line 417,
in runcommand
    return checkargs()
  File "/usr/local/lib/python2.4/site-packages/mercurial/cmdutil.py", line 373,
in checkargs
    return cmdfunc()
  File "/usr/local/lib/python2.4/site-packages/mercurial/cmdutil.py", line 358,
in <lambda>
    d = lambda: func(ui, *args, **cmdoptions)
  File "/usr/local/lib/python2.4/site-packages/mercurial/commands.py", line 929,
in debuginstall
    ui.write(_(" got unexpected merge results!") % r)
TypeError: not all arguments converted during string formatting