For some reason which I have yet to investigate, XWin requires a tty to the log to the terminal. That means it will output to terminal in VTs, but will not work in ordinary cmd/bash shells without setting CYGWIN=tty; instead you will see a cmd window briefly flashing on screen when launched.
Explained at http://cygwin.com/ml/cygwin/2011-05/msg00326.html In brief: XWin is marked as a GUI application, so it doesn't get a console. If started from a console, nothing in the cygwin DLL automatically hooks up stdout/stderr to that console, and doing so automatically seems problematic. Even if CYGWIN=tty goes away, while this apparently inconsistent behaviour (between cmd and cygwin terminal emulators) might confuse people a bit, I don't see this as a big problem as we've always been telling people to look at the logfile rather than stdout anyhow.
Mintty is the default terminal now, so I think we can write this off. Closing.