FWIW, we've had problems with (correct) passwords not being accepted via TortoisePlink when trying that, but we already had other Tortoise* software for different VCSes installed, so I can't rule out some sort of unfortunate conflict.

If SSH really does work for most people once TortoiseHg is installed and we've just been unlucky, then I partially withdraw my criticism, given that in practice I expect a lot of Windows users of Hg do install TortoiseHg as well anyway.