Time Machine? makes it easy... but does it break mercurial's in folder stuff?
Since Mercurial stores everything in a .hg folder at the root of a checkout, I'm pretty sure Time Machine won't adversely affect it.
However, Time Machine ain't version control. It's a backup method. Version control does provide a backup, but that's almost beside the point. "Change management" is a better way to think of version control in this context. Time Machine is merely a stenographer, in comparison.
Regards, Daniel