Make mercurial NOT use xcode's filemerge
I don't have Xcode installed, since I don't want to use FileMerge. However, I can spot that the path to your kdiff3 is inside quotes &quot;, and it shouldn't. I tried here and it doesn't work like that.
The necessary configs to the .hgrc file to run kdiff3 as the vdiff tool in Mercurial (TortoiseHg) are:
[extensions]
hgext.extdiff =

[extdiff]
cmd.kdiff3 = /Applications/kdiff3.app/Contents/MacOS/kdiff3