Peter - on Linux, the standard makefile for Postgres builds the client library, libpq.so. The environment variable PGLIB needs to point to this when you run psql - the first thing you should do to make sure everything's built correctly and your environment's set up correctly.
Did you do a "make install" after "make"? "make install" copies stuff to their home.
You'll need to edit the Makefile that comes with AOLserver to make certain that it references the correct directory, too. And lastly, the account that runs AOLserver needs to have PGLIB, etc set up correctly.
I've not used cygwin, so I can't help you out with any wrinkles this throws into the mix. I know PG and AOLserver both work with it, though - or so folks say.
If you have a large development machine around you can buy VMware for $299 and run Linux on a virtual machine running under NT, getting rid of any cygwin problems. VMware rocks - I've got it running on my laptop (with Win98 running virtual on my Linux machine) and it is very convenient.
