Only the Windows console (cmd.exe) treats
M-RET in that fashion; run your shell, and Emacs, in a proper terminal emulator such as
rxvt, to solve the problem and get a much more pleasant experience besides. (
mintty comes with Cygwin by default, and is considerably better in my experience than
xterm, or any other terminal emulator available in the Cygwin package manager; unlike those relics of a bygone era,
mintty has capabilities roughly on par with modern Linux terminal emulators.)
If you want to get really fancy, which I recommend, then install an X server -- Cygwin packages one, and there's also the third-party Xming version; I've had better results with Xming, but haven't tried Cygwin's X server in long enough that it's probably just as good by now -- and run Emacs in graphical mode, which not only resolves the
M-RET problem but also gives you proper color and font support.