How to reset default permissions after the result of running the chown command

The first step I would recommend is to try resetting your home folder permissions with the Reset Password utility in Lion Recovery. (Despite the name of the utility, you won't actually be resetting any passwords.)

Resetting the home folder permissions with the Reset Password utility will reset both the owner and the permissions.

1. Restart your Mac holding ⌘+R to boot into Lion Recovery, which will bring you to the Repair Utilities screen.

2. Open Terminal from the Utilities menu.

3. In Terminal, enter resetpassword to open the Reset Password utility.

4. Choose your hard drive icon at the top, then choose your user from the drop-down menu below. Do not reset the password here.

5. At the bottom of the window, under "Reset Home Directory Permissions and ACLs", click the "Reset" button. This may take awhile if you have a lot of files in your home folder.

This should solve your permissions problems for most apps. However, it's possible you may have a few apps which had saved files with special permissions that are different from the user's default permissions (like preferences or application support files). For those apps, you may need to delete their preferences or reinstall the app.

If resetting your home folder permissions doesn't work, then you may need to try restoring from a backup or transferring your data to an external drive.

I found the cause.

It looks like the permissions on /usr/local/bin was 700, which is wrong. It should be 755. Changing the permissions fixed it and I can now access the mercurial command line client.