But, alas, Cygwin 1.7 rolled around and now to achieve the same thing we have to muck with /etc/fstab. This is probably a better solution in the long run, as configuration through environment variables is a bit of a mess.
D:/cygwin/bin /usr/bin ntfs binary,auto,noacl 0 0
D:/cygwin/lib /usr/lib ntfs binary,auto,noacl 0 0
D:/cygwin / ntfs override,binary,auto,noacl 0 0
none /cygdrive cygdrive binary,posix=0,user,noacl 0 0
Replace D:/cygwin with your install directory. Note the "noacl" at the end of all the mount options. "override" is necessary for the root directory because Cygwin's default mount point is "immutable" (mount.cc line 342).