For any executable not dependent on msys-1.0.dll, MSYS will convert POSIX paths that are used as arguments to Win32 paths. This page attempts to document the heuristics MSYS uses to decide which arguments are POSIX paths and how they should be converted based on the source of msys_p2w in path.cc.
I am a long user of Cygwin and I always thought that Cygwin has the similar behaviour on the transition from Cygwin executables to native executables. However, it seems to not be the case (you may try using notepad.exe with POSIX path and check the CMD).
How do I have similar functionality in Cygwin - implicit path conversion? Since all Cygwin executables are supporting native Win32 paths is there a way to disable passing POSIX paths even to Cygwin executables at all?