I’ve managed to solve this by doing a clean default Cygwin installtion.
Then adding the required devel packages (cvs, autoconf, automake, gcc, make).
I got SDL-1.2.7 source using CVS then did the “autogen.sh, configure, make, make
Everything worked this time.
I suspect that some Devel package in my previous install was the cause of the
problem, possibly a package for handling m4 scripts.