Edit (2 more years later: October 2014)
Johannes Schindelin just explained (Oct. 2014) that msysgit is phased out:
we now have a light-weight Git for Windows SDK – which is essentially a standard MinGW/MSys system managed through the package manager mingw-get.
We decided to just phase out the name “msysGit” (as well as the GitHub org of the same name) and work on Git for Windows (with the corresponding GitHub org), and using the name “Git for Windows” for the installer aimed at “end-users” and “Git for Windows SDK” for the development environment targeting Git for Windows developers).
Edit (3 years later: April 2012)
MsysGit (now on GitHub) is the way to go if you want a light-weight fast start in Git world: unzip the archive, launch git-cmd.bat or git-bash.bat and you are done.
Its latest release (1.7.10, April 2012) now includes support for UTF-8, also included in GitExtension.
Don’t forget to set your autocrlf to false though.
If you are really missing all the other unix commands not packages with msysgit, simply download a release of GoW (Gnu on Windows), aptly named “The lightweight alternative to Cygwin”.
I mean: 130 unix commands…
Cygwin should be a backup solution only for certain cases, like the transfer speed of large Git repositories, as mentioned below by incrementor in his answer.
June 2012: if you want to interact with GitHub, you now have http://windows.github.com (see also “Designing GitHub for Windows”).
It not only will configure the ssh keys for you (and add the generated public key to your GitHub profile), but it will also install, for all git operations, a… MsysGit.
Original answer (April 2009)
I have no problem with the latest version of MsysGit:
I use the option 2, which means I only add the git\bin directory to the PATH environment variable, but without overriding some built-in windows tools.
I managed to defined external tools like Notepad++ and WinMerge (or DiffMerge)
I did run successfully scripts like svn2git because, from MsysGit1.6.2+, it does include the ‘git svn‘ command.
And finally I look forward to MsysGit1.6.2.3 for it will include finally ‘git filter-branch‘ command! (a slow version of filter-branch, but still).
For the Unix command, I prefer to install a GnuWin32 coreutils package, and use them only when I need them.
So all in all, I do not use the Cygwin layer, and managed to run Git very well in its Windows-based release MsysGit.