When hgmerge returns with an error code, Mercurial simply ignores this fact.

What you can do is:
hg co -C `hg parents -q|head -n 1|cut -d: -f1` && hg co -m

But it would be good to know about the problem.
(there are "merging foo failed!" messages, but with the following call to
hgmerge this might not be visible on the screen anymore)