This problem is caused by invoking a cygwin application using either the wrong version of cygwin, or by using a Windows short path. It can happen when running configtool if you have set up the tools path incorrectly. This should have been correctly set for you by the installer.
To check, go to Tools->Paths...->Build Tools and check that this is set to:
<your kit directory>\bin\nios2-gnutools\H-i686-pc-cygwin\bin
User Tools should be set to the same directory.
Don't worry if you get a message like: "... does not appear to contain the user tools...". This is normal, just click "Yes" to accept the directory. In fact you should worry if you don't see this message, since it means configtool will launch make with the wrong path, causing the problem that you're seeing.