diff -r e68cec5e28b0 -r 6ba58ab719e5 mercurial/merge.py
--- a/mercurial/merge.py	Wed Jan 09 00:01:33 2013 +0100
+++ b/mercurial/merge.py	Tue Jan 15 01:05:12 2013 +0100
@@ -342,7 +342,7 @@
         f, m = a[:2]
         if m == "m": # merge
             f2, fd, flags, move = a[2:]
-            if f == '.hgsubstate': # merged internally
+            if fd == '.hgsubstate': # merged internally
                 continue
             repo.ui.debug("preserving %s for resolve of %s\n" % (f, fd))
             fcl = wctx[f]
@@ -388,7 +388,7 @@
                              (f, inst.strerror))
             removed += 1
         elif m == "m": # merge
-            if f == '.hgsubstate': # subrepo states need updating
+            if fd == '.hgsubstate': # subrepo states need updating
                 subrepo.submerge(repo, wctx, mctx, wctx.ancestor(mctx),
                                  overwrite)
                 continue