[pgk]

The mechanism probably occurs via nitrone formation. Besides, cyclic nitrones (in mixture with 1,2-oxazines) are easily prepared by a simple heating of hydroxylamine hydrochloride with the corresponding unsaturated diketone. Please, see:
Journal of Chemical Sciences, 124(4), 913–919, (2012)
http://www.ias.ac.in/chemsci/Pdf-Jul2012/913.pdf
The question is then, “how pyrrole nitronium oxide is transformed to 1-hydroxypyrrole?"

[orgopete]

The mechanism probably occurs via nitrone formation. Besides, cyclic nitrones (in mixture with 1,2-oxazines) are easily prepared by a simple heating of hydroxylamine hydrochloride with the corresponding unsaturated diketone. Please, see:
Journal of Chemical Sciences, 124(4), 913–919, (2012)
http://www.ias.ac.in/chemsci/Pdf-Jul2012/913.pdf
The question is then, “how pyrrole nitronium oxide is transformed to 1-hydroxypyrrole?"

Whether it goes through a nitrone or not, I don't know.

Re: hydroxypyrrole
http://www.chemicalforums.com/index.php?topic=80292.msg292526#msg292526
Also, see mechanism posted by Dan.

Hydrogen peroxide redox reactions, http://en.wikipedia.org/wiki/Hydrogen_peroxide#Redox_reactions or hydrazine, http://en.wikipedia.org/wiki/Hydrazine#Reducing_agent. It should not be a surprise that hydroxylamine might also be a redundant.