I'm no authority on ROR on cygwin66....  Not making any promises....

Did a little research, and found this at:
http://code.openhub.net/file?fid=_l-OijNPFX7fzeTZ7tG1bdwGj-U&cid=teq11amO2NQ&s=&fp=299059&mp&projSelected=true#L0

It's setup.rb, obviously you can search your environment for setup.rb to 
trace the rbconfig error......   

Seems that if rubygems are already loaded you will get a rbconfig error.

#--
# Copyright 2006, 2007 by Chad Fowler, Rich Kilmer, Jim Weirich, Eric Hodel
# and others.
# All rights reserved.
# See LICENSE.txt for permissions.
#++

if RUBY_VERSION < "1.8.7"
  $stderr.puts "Rubygems now requires Ruby 1.8.7 or later"
  exit 1
end

# Make sure rubygems isn't already loaded.
if ENV['RUBYOPT'] or defined? Gem then
  ENV.delete 'RUBYOPT'

  require 'rbconfig'
  config = defined?(RbConfig) ? RbConfig : Config

  ruby = File.join config::CONFIG['bindir'], 
config::CONFIG['ruby_install_name']
  ruby << config::CONFIG['EXEEXT']

  cmd = [ruby, 'setup.rb', *ARGV].compact
  cmd[1,0] = "--disable-gems" if RUBY_VERSION > "1.9"

  exec(*cmd)
end

Dir.chdir File.dirname(__FILE__)

$:.unshift 'lib'
require 'rubygems'
require 'rubygems/gem_runner'
require 'rubygems/exceptions'

Gem::CommandManager.instance.register_command :setup

args = ARGV.clone
if ENV["GEM_PREV_VER"]
  args = [ '--previous-version', ENV["GEM_PREV_VER"] ] + args
end
args.unshift 'setup'

begin
  Gem::GemRunner.new.run args
rescue Gem::SystemExitException => e
  exit e.exit_code
end

So first I would try
echo $RUBYOPT
I believe that it should return empty, which may indicate that gems are 
already installed

Then I would try....

skip ruby setup, and try

Following the instructions from https://rubygems.org/pages/download#formats

gem update --system

Hope this help....

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