I have been using the "less" command Cygwin without problems for almost a year. For a new project I needed to have perl installed so I downloaed "Strawberry Perl" and installed it.
Afterwards, in cygwin everytime I tried to issue the "less" command it complained that the "terminal is not fully functional".
Turns out Strawberry perl was adding the environment variable TERM with a value of dumb.
Deleting the TERM fixed the issue.