This error occurs since the sub-repositories has been reintegrated in the main Orchard repository.
A way to retrieve the latest 1.x version is to clone directly one of the latest changeset of 1.x :
hg clone --rev 3318cd003030 -- https://hg.codeplex.com/orchard G:\OrchardSources
Try and tell me if it works.
I did it and I managed to retrieve the 1.x branch but there could be another problem :
After doing this on recent changeset (after integration of subrepo), I opened Hg workbench and clicked on Pull and it retrieved the other branches and inserted them in the changesets at the end.
The problem is that when new changes have been pushed, I had an error retrieving them.