See pull request @ https://github.com/jenkinsci/mercurial-plugin/pull/31

Currently it appears that the Mercurial plugin doesn't check the exit code of the hg pull used to update the repository (see hudson.plugins.mercurial.MercurialSCM#update() - https://github.com/jenkinsci/mercurial-plugin/blob/master/src/main/java/hudson/plugins/mercurial/MercurialSCM.java#L496)

So, if the upstream repo has gone away for some reason (say, hypothetically, I've rm-ed it), the hg pull will fail and exit with a status code of 255, but the build will continue regardless