Running Rails myproj on Cygwin doesn’t work at the moment. This is due to a bug in Ruby that has been fixed, but hasn’t yet made the Cygwin project.

At the moment the workaround is to run the Rails command in a windows command prompt. This sux, but only a little bit really. Alternatives focus around patching and rebuilding ruby on cygwin. Don’t really want to do this.

See

Rails Ticket