In my case (using a Polish version of Windows 8) I had to manually modify the /etc/passwd and /etc/group files.
Some lines for Administrator, Administrators, Guest, Guests, etc. had been missing, so I merely inserted them, and copied all other fields from their non-English versions. Eg.
nano /etc/passwd
SYSTEM:*:18:544:,S-1-5-18::
LocalService:*:19:544:U-NT AUTHORITY\LocalService,S-1-5-19::
NetworkService:*:20:544:U-NT AUTHORITY\NetworkService,S-1-5-20::
Administrators:*:544:544:,S-1-5-32-544::
Administratorzy:*:544:544:,S-1-5-32-544::
TrustedInstaller:*:4294967294:4294967294:U-NT SERVICE\TrustedInstaller,S-1-5-80-956008885-3418522649-1831038044-1853292631-2271478464::
Administrator:unused:500:513:U-gordito\Administrator,S-1-5-21-580982140-4090956935-1935414389-500:/home/Administrator:/bin/bash
Guest:unused:501:513:U-gordito\Gość,S-1-5-21-580982140-4090956935-1935414389-501:/home/Gość:/bin/bash
Gość:unused:501:513:U-gordito\Gość,S-1-5-21-580982140-4090956935-1935414389-501:/home/Gość:/bin/bash
HomeGroupUser$:unused:1004:513:HomeGroupUser$,U-gordito\HomeGroupUser$,S-1-5-21-580982140-4090956935-1935414389-1004:/home/HomeGroupUser$:/bin/bash
sshd:unused:1006:513:sshd privsep,U-gordito\sshd,S-1-5-21-580982140-4090956935-1935414389-1006:/var/empty:/bin/false
cyg_server:unused:1007:513:Privileged server,U-gordito\cyg_server,S-1-5-21-580982140-4090956935-1935414389-1007:/var/empty:/bin/false
nano /etc/group
root:S-1-5-32-544:0:
SYSTEM:S-1-5-18:18:
TrustedInstaller:S-1-5-80-956008885-3418522649-1831038044-1853292631-2271478464:4294967294:
Administrators:S-1-5-32-544:544:
Administratorzy:S-1-5-32-544:544:
Czytelnicy dzienników zdarzeń:S-1-5-32-573:573:
Guests:S-1-5-32-546:546:
Goście:S-1-5-32-546:546:
IIS_IUSRS:S-1-5-32-568:568:
Users:S-1-5-32-545:545:
Users DCOM:S-1-5-32-562:562:
Użytkownicy:S-1-5-32-545:545:
Użytkownicy DCOM:S-1-5-32-562:562:
Użytkownicy dzienników wydajności:S-1-5-32-559:559:
Użytkownicy monitora wydajności:S-1-5-32-558:558:
Użytkownicy zarządzania zdalnego:S-1-5-32-580:580:
HomeUsers:S-1-5-21-580982140-4090956935-1935414389-1003:1003:
TelnetClients:S-1-5-21-580982140-4090956935-1935414389-1005:1005:
WinRMRemoteWMIUsers__:S-1-5-21-580982140-4090956935-1935414389-1000:1000:
None:S-1-5-21-580982140-4090956935-1935414389-513:513:
Brak:S-1-5-21-580982140-4090956935-1935414389-513:513:
Only after this, I was finally able to chmod g-rwx
all the files that offended sshd, in a way that 'ls -la' indeed confirmed the dropped permissions for group and other.
Then finally, privileged CYGWIN services installed and started (sshd, cron)