Whenever I try to discard a hunk I get:
'patch' failed with code 1:''

I've also tried with 3.0+20140529 System Mercurial too, and that gives the same error.

If I try to discard a single line, I get:

Applying a patch to the working folder failed - the most likely reason for this is that the state of the file(s) in your working folder have altered too much for the patch process to be able to complete successfully.

Please make the changes manually instead.

Seems the issue has been around since 1.3?
https://twitter.com/aras_p/status/168721126590124032