diff -r 5f126c01ebfa -r b7b26e54e37a mercurial/encoding.py
--- a/mercurial/encoding.py	Fri Apr 15 16:35:32 2011 +0300
+++ b/mercurial/encoding.py	Fri Apr 15 23:45:41 2011 -0500
@@ -95,11 +95,15 @@
     for e in ('UTF-8', fallbackencoding):
         try:
             u = s.decode(e) # attempt strict decoding
-            if e == 'UTF-8':
-                return localstr(s, u.encode(encoding, "replace"))
+            r = u.encode(encoding, "replace")
+            if u == r.decode(encoding):
+                # r is a safe, non-lossy encoding of s
+                return r
+            elif e == 'UTF-8':
+                return localstr(s, r)
             else:
-                return localstr(u.encode('UTF-8'),
-                                u.encode(encoding, "replace"))
+                return localstr(u.encode('UTF-8'), r)
+
         except LookupError, k:
             raise error.Abort("%s, please check your locale settings" % k)
         except UnicodeDecodeError: