The current cygwin released version (1.7.*, not the old 1.5*) runs fine on Win7. I'm guessing your problem is that your home directory in /etc/passwd is set to /home/<username>, and /home is a directory under /cygwin.
You can either fiddle around with junctions and make /home point to the right place for the windows /user structure, but if you don't understand what this means I wouldn't recommend that.
Your other choice would be to change your home directory in /etc/passwd. Try the following in your bash shell:
cd /etc
vi passwd
then find the line with your user account and change /home/<username> to be /cygdrive/c/Users/<username>/Documents
write the file
wq!), close the bash shell and open a new one.