G'day James,
I get the same thing with my laptop. A desktop machine that I have seems to run fine thou with the same hardware, FPGA image and software.
I have found a work around (sorta) is to terminate the nios2-gdb-server.exe process when the system hangs, also need to manually terminate nios2-terminal when you're done. You need to be relative quick about it otherwise things seem to time out and thats the end of it.
I've related symptom of this I also noticed is that when running nios2-terminal from a nios command line session, Ctrl-C does not properly terminate the application. It recognizes the Ctrl-C message and then just stops. Again terminating the process seems to make everything run okay. And again the desktop machine runs fine.
There is some traffic in the cygwin lists that suggest there's a problem with cygwin and some DELL machines that could be the issue.
I've filed the issue with Altera tech support.
Regards
Phil