The problem is that MSYS sees a POSIX-path on the commendline, and
translates it to a Win32-path. You can set the GIT_TRACE environment
variable to 1, and it becomes quite visible what happens.
Read
http://www.mingw.org/wiki/Posix_path_conversion for details.
So, in short: the -u parameter doesn't work from bash on Windows, and
there's nothing obvious we can do to fix it. You can try to do the
initial clone from cmd, perhaps?