Update:
According to the Mercurial config documentation the defaults section is deprecated. The Mercurial wiki is also particularly critical of their use. The recommended replacement is to create a command alias (while not shadowing built in commands) that provides the functionality you are looking for. Here's what I've switched to in my config.
[alias]
undo = revert --no-backup
Original:
I stumbled across this while experiencing the exact same problem. I had been just dealing with it and deleting the .orig files, since I never seem to need them. The best recommendation I've found was on StackOverflow and suggests using the defaults section of your hgrc file. To address this specifically, add the following section:
[defaults]
revert = --no-backup
Here's where I read about this.
Personally I will add *.orig files to the hg ignore list, and times to times do a
rm **/*.orig
Alternatively you can use Hg Purge extension
The following seems to be enough to convince hg not to write these files:
# ~/.hgrc
[ui]
origbackuppath = /tmp/hg-trash
I got it working in SourceTree by disabling backups in application.
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