Situation: Windows default installation. Default encoding is cp1252. I modify
the web section in Mercurial.ini and add encoding=utf-8. "hg serve" without any
parameter. hg sends to client the encoding is utf-8 as intendet - but - the
content is still encoded in cp1252 and therefore does not make sense.

example

hgweb_mod.py calls changectx from a context
context.py calls from read from changelog
changelog.py calls tolocal from util
util.py does not care about the web encoding

The cp1252 encoded string therfore goes back up to hgweb_mod.py and is never
modified again.

A simple bugfix would be to remove the web encoding at all. An "--encoding
utf-8" in the defaults section for "hg serve" does work well.