diff --git a/hgext/largefiles/proto.py b/hgext/largefiles/proto.py
--- a/hgext/largefiles/proto.py
+++ b/hgext/largefiles/proto.py
@@ -6,7 +6,7 @@
 import os
 import urllib2
 
-from mercurial import error, httprepo, util, wireproto
+from mercurial import error, httppeer, util, wireproto
 from mercurial.wireproto import batchable, future
 from mercurial.i18n import _
 
@@ -82,7 +82,7 @@ def wirereposetup(ui, repo):
             # unfortunately, httprepository._callpush tries to convert its
             # input file-like into a bundle before sending it, so we can't use
             # it ...
-            if issubclass(self.__class__, httprepo.httprepository):
+            if issubclass(self.__class__, httppeer.httppeer):
                 res = None
                 try:
                     res = self._call('putlfile', data=fd, sha=sha,
diff --git a/hgext/largefiles/uisetup.py b/hgext/largefiles/uisetup.py
--- a/hgext/largefiles/uisetup.py
+++ b/hgext/largefiles/uisetup.py
@@ -9,7 +9,7 @@
 '''setup for largefiles extension: uisetup'''
 
 from mercurial import archival, cmdutil, commands, extensions, filemerge, hg, \
-    httprepo, localrepo, merge, sshrepo, sshserver, wireproto
+    httppeer, localrepo, merge, sshpeer, sshserver, wireproto
 from mercurial.i18n import _
 from mercurial.hgweb import hgweb_mod, protocol, webcommands
 from mercurial.subrepo import hgsubrepo
@@ -143,10 +143,10 @@ def uisetup(ui):
 
     # can't do this in reposetup because it needs to have happened before
     # wirerepo.__init__ is called
-    proto.ssholdcallstream = sshrepo.sshrepository._callstream
-    proto.httpoldcallstream = httprepo.httprepository._callstream
-    sshrepo.sshrepository._callstream = proto.sshrepocallstream
-    httprepo.httprepository._callstream = proto.httprepocallstream
+    proto.ssholdcallstream = sshpeer.sshpeer._callstream
+    proto.httpoldcallstream = httppeer.httppeer._callstream
+    sshpeer.sshpeer._callstream = proto.sshrepocallstream
+    httppeer.httppeer._callstream = proto.httprepocallstream
 
     # don't die on seeing a repo with the largefiles requirement
     localrepo.localrepository.supported |= set(['largefiles'])
diff --git a/mercurial/commands.py b/mercurial/commands.py
--- a/mercurial/commands.py
+++ b/mercurial/commands.py
@@ -16,7 +16,7 @@ import sshserver, hgweb, hgweb.server, c
 import merge as mergemod
 import minirst, revset, fileset
 import dagparser, context, simplemerge, graphmod
-import random, setdiscovery, treediscovery, dagutil, pvec
+import random, setdiscovery, treediscovery, dagutil, pvec, localrepo
 import phases, obsolete
 
 table = {}
@@ -1789,6 +1789,9 @@ def debugdiscovery(ui, repo, remoteurl="
             if localheads:
                 raise util.Abort('cannot use localheads with old style '
                                  'discovery')
+            if not util.safehasattr(remote, 'branches'):
+                # enable in-client legacy support
+                remote = localrepo.locallegacypeer(remote.local())
             common, _in, hds = treediscovery.findcommonincoming(repo, remote,
                                                                 force=True)
             common = set(common)
diff --git a/mercurial/hg.py b/mercurial/hg.py
--- a/mercurial/hg.py
+++ b/mercurial/hg.py
@@ -9,7 +9,7 @@
 from i18n import _
 from lock import release
 from node import hex, nullid
-import localrepo, bundlerepo, httprepo, sshrepo, statichttprepo, bookmarks
+import localrepo, bundlerepo, httppeer, sshpeer, statichttprepo, bookmarks
 import lock, util, extensions, error, node, scmutil
 import cmdutil, discovery
 import merge as mergemod
@@ -65,9 +65,9 @@ def parseurl(path, branches=None):
 schemes = {
     'bundle': bundlerepo,
     'file': _local,
-    'http': httprepo,
-    'https': httprepo,
-    'ssh': sshrepo,
+    'http': httppeer,
+    'https': httppeer,
+    'ssh': sshpeer,
     'static-http': statichttprepo,
 }
 
diff --git a/mercurial/httprepo.py b/mercurial/httppeer.py
rename from mercurial/httprepo.py
rename to mercurial/httppeer.py
--- a/mercurial/httprepo.py
+++ b/mercurial/httppeer.py
@@ -1,4 +1,4 @@
-# httprepo.py - HTTP repository proxy classes for mercurial
+# httppeer.py - HTTP repository proxy classes for mercurial
 #
 # Copyright 2005, 2006 Matt Mackall <mpm@selenic.com>
 # Copyright 2006 Vadim Gelfer <vadim.gelfer@gmail.com>
@@ -23,7 +23,7 @@ def zgenerator(f):
         raise IOError(None, _('connection ended unexpectedly'))
     yield zd.flush()
 
-class httprepository(wireproto.wirerepository):
+class httppeer(wireproto.wirepeer):
     def __init__(self, ui, path):
         self.path = path
         self.caps = None
@@ -56,7 +56,7 @@ class httprepository(wireproto.wirerepos
     def _fetchcaps(self):
         self.caps = set(self._call('capabilities').split())
 
-    def get_caps(self):
+    def _capabilities(self):
         if self.caps is None:
             try:
                 self._fetchcaps()
@@ -66,8 +66,6 @@ class httprepository(wireproto.wirerepos
                           (' '.join(self.caps or ['none'])))
         return self.caps
 
-    capabilities = property(get_caps)
-
     def lock(self):
         raise util.Abort(_('operation not supported over http'))
 
@@ -215,21 +213,21 @@ class httprepository(wireproto.wirerepos
     def _decompress(self, stream):
         return util.chunkbuffer(zgenerator(stream))
 
-class httpsrepository(httprepository):
+class httpspeer(httppeer):
     def __init__(self, ui, path):
         if not url.has_https:
             raise util.Abort(_('Python support for SSL and HTTPS '
                                'is not installed'))
-        httprepository.__init__(self, ui, path)
+        httppeer.__init__(self, ui, path)
 
 def instance(ui, path, create):
     if create:
         raise util.Abort(_('cannot create new http repository'))
     try:
         if path.startswith('https:'):
-            inst = httpsrepository(ui, path)
+            inst = httpspeer(ui, path)
         else:
-            inst = httprepository(ui, path)
+            inst = httppeer(ui, path)
         try:
             # Try to do useful work when checking compatibility.
             # Usually saves a roundtrip since we want the caps anyway.
diff --git a/mercurial/localrepo.py b/mercurial/localrepo.py
--- a/mercurial/localrepo.py
+++ b/mercurial/localrepo.py
@@ -6,7 +6,7 @@
 # GNU General Public License version 2 or any later version.
 from node import bin, hex, nullid, nullrev, short
 from i18n import _
-import repo, changegroup, subrepo, discovery, pushkey, obsolete
+import peer, changegroup, subrepo, discovery, pushkey, obsolete
 import changelog, dirstate, filelog, manifest, context, bookmarks, phases
 import lock, transaction, store, encoding, base85
 import scmutil, util, extensions, hook, error, revset
@@ -23,9 +23,90 @@ class storecache(filecache):
     def join(self, obj, fname):
         return obj.sjoin(fname)
 
-class localrepository(repo.repository):
-    capabilities = set(('lookup', 'changegroupsubset', 'branchmap', 'pushkey',
-                        'known', 'getbundle'))
+MODERNCAPS = set(('lookup', 'branchmap', 'pushkey', 'known', 'getbundle'))
+LEGACYCAPS = MODERNCAPS.union(set(['changegroupsubset']))
+
+class localpeer(peer.peerrepository):
+    '''peer for a local repo; reflects only the most recent API'''
+
+    def __init__(self, repo, caps=MODERNCAPS):
+        peer.peerrepository.__init__(self)
+        self._repo = repo
+        self.ui = repo.ui
+        self._caps = repo._restrictcapabilities(caps)
+        self.requirements = repo.requirements
+        self.supportedformats = repo.supportedformats
+
+    def close(self):
+        self._repo.close()
+
+    def _capabilities(self):
+        return self._caps
+
+    def local(self):
+        return self._repo
+
+    def cancopy(self):
+        return self._repo.cancopy() # so bundlerepo can override
+
+    def url(self):
+        return self._repo.url()
+
+    def lookup(self, key):
+        return self._repo.lookup(key)
+
+    def branchmap(self):
+        return self._repo.branchmap()
+
+    def heads(self):
+        return self._repo.heads()
+
+    def known(self, nodes):
+        return self._repo.known(nodes)
+
+    def getbundle(self, source, heads=None, common=None):
+        return self._repo.getbundle(source, heads=heads, common=common)
+
+    # TODO We might want to move the next two calls into legacypeer and add
+    # unbundle instead.
+
+    def lock(self):
+        return self._repo.lock()
+
+    def addchangegroup(self, cg, source, url):
+        return self._repo.addchangegroup(cg, source, url)
+
+    def pushkey(self, namespace, key, old, new):
+        return self._repo.pushkey(namespace, key, old, new)
+
+    def listkeys(self, namespace):
+        return self._repo.listkeys(namespace)
+
+    def debugwireargs(self, one, two, three=None, four=None, five=None):
+        '''used to test argument passing over the wire'''
+        return "%s %s %s %s %s" % (one, two, three, four, five)
+
+class locallegacypeer(localpeer):
+    '''peer extension which implements legacy methods too; used for tests with
+    restricted capabilities'''
+
+    def __init__(self, repo):
+        localpeer.__init__(self, repo, caps=LEGACYCAPS)
+
+    def branches(self, nodes):
+        return self._repo.branches(nodes)
+
+    def between(self, pairs):
+        return self._repo.between(pairs)
+
+    def changegroup(self, basenodes, source):
+        return self._repo.changegroup(basenodes, source)
+
+    def changegroupsubset(self, bases, heads, source):
+        return self._repo.changegroupsubset(bases, heads, source)
+
+class localrepository(object):
+
     supportedformats = set(('revlogv1', 'generaldelta'))
     supported = supportedformats | set(('store', 'fncache', 'shared',
                                         'dotencode'))
@@ -36,7 +117,6 @@ class localrepository(repo.repository):
         return self.requirements[:]
 
     def __init__(self, baseui, path=None, create=False):
-        repo.repository.__init__(self)
         self.wopener = scmutil.opener(path, expand=True)
         self.wvfs = self.wopener
         self.root = self.wvfs.base
@@ -126,6 +206,12 @@ class localrepository(repo.repository):
         # Maps a property name to its util.filecacheentry
         self._filecache = {}
 
+    def close(self):
+        pass
+
+    def _restrictcapabilities(self, caps):
+        return caps
+
     def _applyrequirements(self, requirements):
         self.requirements = requirements
         self.sopener.options = dict((r, 1) for r in requirements
@@ -175,6 +261,9 @@ class localrepository(repo.repository):
                 parts.pop()
         return False
 
+    def peer(self):
+        return localpeer(self) # not cached to avoid reference cycle
+
     @filecache('bookmarks')
     def _bookmarks(self):
         return bookmarks.read(self)
@@ -668,6 +757,9 @@ class localrepository(repo.repository):
     def local(self):
         return self
 
+    def cancopy(self):
+        return self.local() # so statichttprepo's override of local() works
+
     def join(self, f):
         return os.path.join(self.path, f)
 
diff --git a/mercurial/repo.py b/mercurial/peer.py
rename from mercurial/repo.py
rename to mercurial/peer.py
--- a/mercurial/repo.py
+++ b/mercurial/peer.py
@@ -1,4 +1,4 @@
-# repo.py - repository base classes for mercurial
+# peer.py - repository base classes for mercurial
 #
 # Copyright 2005, 2006 Matt Mackall <mpm@selenic.com>
 # Copyright 2006 Vadim Gelfer <vadim.gelfer@gmail.com>
@@ -9,16 +9,18 @@
 from i18n import _
 import error
 
-class repository(object):
+class peerrepository(object):
+
     def capable(self, name):
         '''tell whether repo supports named capability.
         return False if not supported.
         if boolean capability, return True.
         if string capability, return string.'''
-        if name in self.capabilities:
+        caps = self._capabilities()
+        if name in caps:
             return True
         name_eq = name + '='
-        for cap in self.capabilities:
+        for cap in caps:
             if cap.startswith(name_eq):
                 return cap[len(name_eq):]
         return False
@@ -31,13 +33,17 @@ class repository(object):
                   'support the %r capability') % (purpose, name))
 
     def local(self):
-        return False
+        '''return peer as a localrepo, or None'''
+        return None
+
+    def peer(self):
+        return self
 
     def peer(self):
         return self
 
     def cancopy(self):
-        return self.local()
+        return False
 
     def close(self):
         pass
diff --git a/mercurial/sshrepo.py b/mercurial/sshpeer.py
rename from mercurial/sshrepo.py
rename to mercurial/sshpeer.py
--- a/mercurial/sshrepo.py
+++ b/mercurial/sshpeer.py
@@ -1,4 +1,4 @@
-# sshrepo.py - ssh repository proxy class for mercurial
+# sshpeer.py - ssh repository proxy class for mercurial
 #
 # Copyright 2005, 2006 Matt Mackall <mpm@selenic.com>
 #
@@ -25,7 +25,7 @@ def _serverquote(s):
         return s
     return "'%s'" % s.replace("'", "'\\''")
 
-class sshrepository(wireproto.wirerepository):
+class sshpeer(wireproto.wirepeer):
     def __init__(self, ui, path, create=False):
         self._url = path
         self.ui = ui
@@ -90,12 +90,15 @@ class sshrepository(wireproto.wirereposi
             self._abort(error.RepoError(_('no suitable response from '
                                           'remote hg')))
 
-        self.capabilities = set()
+        self._caps = set()
         for l in reversed(lines):
             if l.startswith("capabilities:"):
-                self.capabilities.update(l[:-1].split(":")[1].split())
+                self._caps.update(l[:-1].split(":")[1].split())
                 break
 
+    def _capabilities(self):
+        return self._caps
+
     def readerr(self):
         while True:
             size = util.fstat(self.pipee).st_size
@@ -233,4 +236,4 @@ class sshrepository(wireproto.wirereposi
         except ValueError:
             self._abort(error.ResponseError(_("unexpected response:"), r))
 
-instance = sshrepository
+instance = sshpeer
diff --git a/mercurial/statichttprepo.py b/mercurial/statichttprepo.py
--- a/mercurial/statichttprepo.py
+++ b/mercurial/statichttprepo.py
@@ -76,6 +76,10 @@ def build_opener(ui, authinfo):
 
     return statichttpopener
 
+class statichttppeer(localrepo.localpeer):
+    def local(self):
+        return None
+
 class statichttprepository(localrepo.localrepository):
     def __init__(self, ui, path):
         self._url = path
@@ -116,6 +120,7 @@ class statichttprepository(localrepo.loc
         self.svfs = self.sopener
         self.sjoin = self.store.join
         self._filecache = {}
+        self.requirements = requirements
 
         self.manifest = manifest.manifest(self.sopener)
         self.changelog = changelog.changelog(self.sopener)
@@ -125,7 +130,9 @@ class statichttprepository(localrepo.loc
         self._branchcachetip = None
         self.encodepats = None
         self.decodepats = None
-        self.capabilities.difference_update(["pushkey"])
+
+    def _restrictcapabilities(self, caps):
+        return caps.difference(["pushkey"])
 
     def url(self):
         return self._url
@@ -133,6 +140,9 @@ class statichttprepository(localrepo.loc
     def local(self):
         return False
 
+    def peer(self):
+        return statichttppeer(self)
+
     def lock(self, wait=True):
         raise util.Abort(_('cannot lock static-http repository'))
 
diff --git a/mercurial/wireproto.py b/mercurial/wireproto.py
--- a/mercurial/wireproto.py
+++ b/mercurial/wireproto.py
@@ -9,7 +9,7 @@ import urllib, tempfile, os, sys
 from i18n import _
 from node import bin, hex
 import changegroup as changegroupmod
-import repo, error, encoding, util, store
+import peer, error, encoding, util, store
 import phases
 
 # abstract batching support
@@ -149,7 +149,7 @@ def unescapearg(escaped):
 def todict(**args):
     return args
 
-class wirerepository(repo.repository):
+class wirepeer(peer.peerrepository):
 
     def batch(self):
         return remotebatch(self)
diff --git a/tests/notcapable b/tests/notcapable
--- a/tests/notcapable
+++ b/tests/notcapable
@@ -6,13 +6,18 @@ then
 fi
 
 cat > notcapable-$CAP.py << EOF
-from mercurial import extensions, repo
+from mercurial import extensions, peer, localrepo
 def extsetup():
-    extensions.wrapfunction(repo.repository, 'capable', wrapper)
-def wrapper(orig, self, name, *args, **kwargs):
+    extensions.wrapfunction(peer.peerrepository, 'capable', wrapcapable)
+    extensions.wrapfunction(localrepo.localrepository, 'peer', wrappeer)
+def wrapcapable(orig, self, name, *args, **kwargs):
     if name in '$CAP'.split(' '):
         return False
     return orig(self, name, *args, **kwargs)
+def wrappeer(orig, self):
+    # Since we're disabling some newer features, we need to make sure local
+    # repos add in the legacy features again.
+    return localrepo.locallegacypeer(self)
 EOF
 
 echo '[extensions]' >> $HGRCPATH
diff --git a/tests/test-wireproto.py b/tests/test-wireproto.py
--- a/tests/test-wireproto.py
+++ b/tests/test-wireproto.py
@@ -9,7 +9,7 @@ class proto(object):
         names = spec.split()
         return [args[n] for n in names]
 
-class clientrepo(wireproto.wirerepository):
+class clientpeer(wireproto.wirepeer):
     def __init__(self, serverrepo):
         self.serverrepo = serverrepo
     def _call(self, cmd, **args):
@@ -36,7 +36,7 @@ def greet(repo, proto, name):
 wireproto.commands['greet'] = (greet, 'name',)
 
 srv = serverrepo()
-clt = clientrepo(srv)
+clt = clientpeer(srv)
 
 print clt.greet("Foobar")
 b = clt.batch()