Mercurial can handle filenames in the same directory that differ only in their case within its repositories (.hg
directory at the top level of your repo). On case sensitive file systems (most on unix) it can handle those files in the working directory too. However, on systems that are merely case-retentive the OS doesn't let you have two files in the same directory that differ only by case and Mercurial warns you about that (as you've seen).
To work around this limitation of your OS, checkout your clone on a case sensitive file system, delete the file, and then commit/push. So long as the windows people aren't hg updating
to a revision that has the collision they'll be okay (since it's okay down in the repository just not in their working dir).