Without being able to access history directly from within SSMS (as with SVN), I think I'd regard Mercurial as only "partially supported" by SQL Source Control at this time.

SSMS add-in would be great! Mercurial is really gaining ground and this would just make it even better.

I'm about to move jobs and I need to put in place a source control system in the new companay, having looked at SVN, TFS and recently Mercurial. I think I will be going the Mercurial DVCS route, so this will be a deal breaker for me.

Yes I've just moved jobs having put Source Control in against SVN at my old company. My new employer uses mercurial and not having source control in SSMS is killing me. To think I always had to work like this, it feels like the stone age now. Mercurial seems to be the leader in distributed VCS, I would suggest it should be at the top of your list for VCS systems to add.

Distributed source control systems like Mercurial and Git are rapidly gaining ground on older style VCSs such as Subversion. Mercurial support should be easy to implement.

As Mercurial gives you the option to have your own seperate (and decentralized!) repository, synchronising only tested versions of the code with the main repository and having your personal repository with you on the road, we recently switched our projects to Hg. Supporting it would be a nice feature.

Mercurial support would be beneficial for environments where developers run their local repositories and don't rely on a central server.

I've used SVN Server some time ago, but again SVN implies that you need to have a centralised server for it. (Yes, you can install it even on your machine but logically it will be another service you'll have to run.)
With Mercurial all you need is just a client.
And also as Lazy Dave already mentioned, and one of the main advantages of the Mercurial for me -- very easy branching and merging.

I recently moved all our code repositories from VisualSVN/Tortoise SVN to Hg/Tortoise HG and within a couple of months have found it to be much easier to use than SVN. Whereas branching and merging was a nightmare in SVN and avoided doing so it’s ‘almost’ a pleasure in Hg. We now maintain several different versions of the same code base where bug fixes/new features from older versions can easily be migrated to the later ones.

Visual SVN is a really simple free SVN Server that works very very well. Simple and quick and no Apache install to get it setup. I was disappointed about no support for my favorite tool at first, but then I found this SVN server and found it to work great.

When I mentioned this to you (Stephanie) in the past, you commented that for single developer shops SVN is a reasonable 'Free' choice. My response is that SVN requires an Apache install. I, and many others don't have or want to install Apache in their systems. Mercurial doesn't require any other server software. Also, I missed those polls as well.

Unfortunately I didn't knew about those polls.
But, in my opinion Mercurial grows in its popularity as well. (CodePlex's support of Mercurial and HgInit.com are both signs of that as I think.)
Also with SVN and TFS you need to create a central repository first in order to use the benefits of the source control what is not always convenient, especially for testing purposes.

We decided to support Subversion and Team Foundation Server based on polls ran on www.SQLServerCentral.com, which show these systems as very popular and increasing in use over the past two years. These will be the only two source control systems that we support in v1, but we will continue to monitor source control system popularity and requests for supporting future source control systems.