James, to debug this further:

Would you have any preferences in ~/.darcs/prefs which could be affecting this? 

You mentioned it happens with Darcs2. How about if you use "darcs get --hashed" ? 

also, you can try this:

strace darcs get foo foo-cloned. 

That will spew all the low level system calls that are happening. (There will be
many!). Although the output will be verbose, you should be able to perhaps get
an idea of what's going on when the system runs out of memory, and/or how the
local case differs from the http case.