damian,
1/ yes, fossil doesn't support recursive add. However there are some fairly simply workarounds such as
for /r %i in (*.*) do fossil add "%i"
on Windows, and
find . -type f -print0 | xargs -0 fossil add --
on Unix.
2/ I saw the message about malformed manifest when you are adding a file with non-ASCII characters in the filename. The problem was corrected in the last build.
Regards,
Petr