I\'m using Vim 7.4 on Windows 7.
I do have a custom _vimrc file, but both Vim and gVim work fine. When I try to run vimdiff .\\xxxxx .\\yyyyy, it gives the
vimdiff .\\xxxxx .\\yyyyy
Adding:
set shell=c:\cygwin64\bin\bash.exe
to my _vimrc worked for me.