It's possible to create this workflow with multiple repositories.
As of v4.1 (code), the Mercurial Extension does not support branching - but it's definitely on the roadmap. Ideally, it would operate like the Git Extension. Now in v4.2, selecting a branch is now part of the source path, so it can be access with variables or selected from the FileFolder picker directly under the repository root.
You can, however, set up a Mercurial provider to use multiple repositories. To do this, just click the "Add additional repository..." link on the provider configuration page:
That will show the repositories list for the provider:
And then you can just continue to add multiple repositories from there: