Im going to use this post to keep track of the issues i encounter installing cygwin in vista:

Error on startup

Your group is currently "mkpasswd".  This indicates that
the /etc/passwd (and possibly /etc/group) files should be rebuilt.
See the man pages for mkpasswd and mkgroup then, for example, run
mkpasswd -l [-d] > /etc/passwd
mkgroup  -l [-d] > /etc/group
Note that the -d switch is necessary for domain users.

Solution

If you arent Domain user and use Cygwin only localy
the right way is:

mkpasswd -l -p /home/ -c > /etc/passwd
 mkgroup -l -c > /etc/group

use the -p option otherwise you will find your home
in the deep stack of shit within windows.

Solution from link