I entered ssh-host-config
into the cygwin prompt (started with admin privileges), said yes to privilege separation, new local account sshd, install sshd as a servic
I had the same problem and here is the solution that worked for me.
Solution 1
Restart the machine after you set the path environment variables to point to Cygwin bin directories and then start the service.
Solution 2
First add the account that runs the Cygwin sshd demon service to administrators group (this is by default)
Go to your cygwin installation folder (mine is at c:\cygwin64 and yours may differ)
Run the cygwin terminal as administrator and remove the service by typing
cygrunsrv -R sshd
Reboot your system
Run the cygwin terminal as administrator and reinstall the service again by typing
ssh-host-config -y
Run the cygwin terminal as administrator and start the service by typing
net start sshd
Your service now be running!