I have installed two windows servers with the latest versions of cygwin and git, and am trying to clone the git repository from S1, to S2. I can successfully ssh from S2 to
You don't mention this in your problem statement, but I am presuming you are running on a 64 bit version of Windows. Cygwin has problems running on 64 bit Windows, especially with large programs. I believe this is due to memory management issues within the cygwin1.dll support library. It looks like it's making the unsupportable assumption that it will forever and always be mapped to the same address in every process, so it's okay for it to keep process specific things (like heap addresses) in system-wide global variables.
In my abundant free time, I've been trying to track down the problematic bits. In the meantime, you could try rebasing cygwin1.dll itself. Be warned, that's a great whackin' lot more complicated than it needs to be - even more complicated than rebasing all of everything else.