These are the steps I took:
First thing: don't use TortoiseHg for this. Use the Mercurial installer instead.
(TortoiseHg tries to be as independent of your Python installation as possible, and for reasons unclear to this Python-newbie, things Don't Work. Something about py2exe.)
Otherwise, just follow the steps in the HgWebDirStepByStep. I did have to install pywintypes, but YMMV. Lastly, the unzip utility mentioned on that page may do strange things with file permissions: I had to add read permissions to Templates directory and its files/subdirectories.
As an aside, if you're wondering how to set the style, add this to hgweb.config:
[web]
style = foo