$ editrights -u sshd_server -a SeCreateTokenPrivilege
That was the fix. The README above gave you some nice hints - like the word token. Another user on the web gave the big clue to use editrights. Running this with the -hv parameter listed the rights you could add. I'm not sure if it mattered or not, but logging into Windows as the user and running Cygwin to create the Cygwin environment seemed to help some things as well. (Oh, and run ssh-user-config too!)
So that's it! Be sure to read the above README and add the editrights command at the end and all should be well. Good luck!