I'm referring to the default _vimrc in the "Vim without Cream"
installation, which supposedly uses the official runtime (but I'm not
sure where this file is from).

For some reason all " characters are being escaped with a \ and
cmd.exe cannot understand this.

Simply doing :s#\\"#"#g on the MyDiff function allows diff to work.

Also setting diffexpr= (empty) allows diff to work.

This needs to be fixed! It has been brought up multiple times before:

http://vim.1045645.n5.nabble.com/Problem-with-quot-without-Cream-quot-vim-7-2-303-vimrc-td1198307.html
(I couldn't locate the google groups thread)
http://vim.wikia.com/wiki/Running_diff

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