I had a very simmilar issue. This finally works now:
changegroup = cmd /c hg update
The bold cmd /c causes cmd.exe to spawn which will execute hg update as we want it to, but now the exit value from cmd.exe will be 0.
Longer Story:
setup: win 2008 server.
mercurial 1.9.3
hgwebdir via plain http, its an internal network
error:
my error was funnily not the -1 as in your case but
"warning: changegroup hook exited with status 1"
Anyway, the update was not performed.
I found out that I can put the hooks into either .hgrc or into hgweb.config the problem was the same here or there. I finally put it into hgweb.config as below, so all repositories are auto commiting, which is way better than having this loose branch all the time. The main reason I wanted auto commit is that the respositories on the vcs & build server hold now the latest version which makes admin tasks often simpler.
[web]
push_ssl = False allow_push = *
[collections]
c:\Dev\Reps = c:\Dev\Reps
[ui]
debug=true
[hooks]
changegroup = cmd /c hg update