MinTTY: A decent native Windows shell
Instead of messing with X or doing all the crazy configs needed to make rxvt habitable, just use mintty, which is part of cygwin.
You can configure it by with right click → options. That's it. No additional steps, no config files, it just works.
'Open MinTTY here' context menu entry
Just install the 'chere' package from cygwin, then:
$ chere -i -t mintty -s bash -e '&MinTTY here'