The complete path along with the executable name needs to be included in version 12.x of the tools when launching the Inisght GDB GUI from the Xbash shell. The complete path is: /cygdrive/c/Xilinx/12.1/ISE_DS/EDK/insight-gdb/microblaze/nt/bin/mb-gdb for MicroBlaze, or /cygdrive/c/Xilinx/12.1/ISE_DS/EDK/insight-gdb/powerpc-eabi/nt/bin/powerpc-eabi-gdb for PowerPC.