You need to enable the extension in the repository as well, after its been converted with hglfconvert. This can be done by editting the .hg/hgrc file (create it if it doesn't exist).
I had to do this on the Mercurial server in my environment. I'm not positive whether this is the appropriate location, I just know this is what I had to do to get it working in our setup. YMMV.
Add the following lines:
[extensions]
largefiles=
Note again that this is applicable to repositories that have already been converted. Simply adding it to an existing repository likely won't do the trick.