See line 61 of the script -- it sets the MY_CFLAGS variable explicitly. It's a shell script, not a Makefile, so environment settings don't override variables that are set explicitly.
FWIW, the latest generic-build-script corrects this issue.
I plan to roll out a new version of cygutils when coreutils gets the final OK. I'll try to remember to update to the latest gbs at that time -- but honestly, I don't get too worked up over custom build issues. Running the script as-is allows one to duplicate the official cygwin package -- that's all that I'm willing to promise. Anything beyond that is just gravy.
Or, you could just get the actual tarball, and do a configure/make/make-install...
Now, about the d2u/u2d issue, see my separate reply.
-- Chuck
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