I've found a workaround, for now. It turns out that the RENDER extension is working find on Cygwin/XFree86, but the LAYER and/or RANDR extensions are causing problems when displaying icons with alpha channels. For now the solution is to just disable LAYER and RANDR, since we don't even know what they do (lack of documentation from the creator).
I may look into the particular problem with LAYER and/or RANDR later, but for now consider this BUG CLOSED. Thanks for your help, especially Waldo, who pointed me to the alpha channel. Harold Hunt
