Here is what you need to do to fix it:
- Right click on "My Computer" -> Properties -> Advanced -> Environment Variables
- Add a new environment variable, called CYGWIN_HOME and set its value to C:\cygwin
- Edit the PATH environment variable and add C:\cygwin\bin to it (usually separated by a ';').
- Just click okay, exit any command prompts or bash shells (over cygwin) you may have open, and open it again - it'll work!