It appears that the version of rxvt installed by the Cygwin installer wasn't compiled with wheel mouse support. Of course I may be mistaken and am just doing something wrong.
WFM. :-)
You should have a look around your Control Panel - Mouse settings. Depending on which driver you use, it's probably possible to put rxvt on an "exception list" - tell the mouse driver not to use its own wheel handling, but let rxvt figure it out itself.
HTH,
- Michael
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