rxvt is an xterm replacement that got rid of most of the extra cruft and that happens to be included in the Cygwin distribution in a dual-mode port (compiled both for X and Win32 displays, via an emulation library called libW11).
here is my rxvt shortcut invocation:
D:\bin\rxvt.exe -tn xterm -sr -fn "vt6x13" -sl 30000 -e bash --login -i
D:\bin\rxvt.exe -tn xterm -sr -fn "Lucida Console-9" -sl 30000 -e bash --login -i
- Linux Font Project has a monospaced bitmap font I intend to try out some time.