This is actually pretty easy to do; but I've been busy working on other things that I forgot to document this for you guys.

Steps to do this:
1. You need to download Cygwin Setup and Install it
2. Install the Xinit from the x11 category
3. Start Xwin Server in Windows
4. Type in the Xwin Shell
Xephyr :2 -host-cursor -screen 800x480x16 -dpi 96 -ac

5. Start your VM and start scratchbox.
6. In your scratchbox you need to do
export DISPLAY=<IP ADDRESS>:2
where <IP ADDRESS> is the ip address of the windows os. So in my case; my VM is 192.168.0.184 and my XP desktop is 192.168.0.240 so in scratchbox I type
export DISPLAY=192.168.0.240:2
7. in scratchbox type:
af-sb-init start

And you should be connected. If it doesn't connect you might need to run xauthority in your xwin shell. You can also edit the xwinrc file and add Xypher to it as a quick load program.

Nathan