Only the Windows console (cmd.exe) treats M-RET in that fashion; run your shell, and Emacs, in a proper terminal emulator such as mintty or 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 rxvt, 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.