I had it happened a couple of times now that Mercurial on Windows would give me this error:
skipping unreadable pattern file ‘D:\Documents\Programming\YourProject\’: No such file or directory
This message is strange because the path actually exits.
After some searching I found the solution in the Mercurial bug tracker:
Bug 5325 – “skipping unreadable pattern file” by empty ui.ignore
The title already suggests the solution. There’s an empty ignore=
entry in the global mercurial.ini
file.

Removing this entry solves the problem.
The file is located here:
C:\Users\<YourUserName>\mercurial.ini
Note: It seems this “problem” is caused by SourceTree.