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When using Cygwin and gvim invoked from a Windows 7 taskbar shortcut, Cygwin utilities are not executed within Vim.
For example:
:%!sort -k2,2
results in the buffer being replaced with "-k2,2 not found". That is, the Windows sort command was executed instead of the Cygwin (gnu) sort. This is despite the fact that C:\cygwin\bin is at the beginning of the PATH environment variable.
If you open a command prompt window and start gvim from the command line, the Cygwin sort is executed properly.
A fix is to change the "Start in" box in the taskbar shortcut properties to something non blank. For example, change the "Start In" box to "C:\Users\fred\Documents". Thereafter, Cygwin executables will be found if you start Vim from the taskbar shortcut.