Are you sure you have installed the cygwin correctly ?
Maybe if you reinstall everything, but using full instalation instead of 'normal' or anything like it.
Your configure.bat seems to be just like mine :
@start D:/Altera/quartus41/bin/cygwin/bin/bash.exe -c "source $QUARTUS_ROOTDIR/sopc_builder/bin/nios_sh; source $SOPC_KIT_NIOS2/user.bashrc; KERNEL_PROJECT=D:/Altera/Projetos/teste/kernel; make -C `cygpath -u D:/Altera/kits/nios2/bin/eclipse/plugins/com.microtronix.nios2linux.kernel_0.1.5/linux-2.6.x` O=`cygpath -u D:/Altera/Projetos/teste/kernel/build` menuconfig; "
Look if the cygwin directory really exists, and if it is in your path too.