I just had this same problem, so I'll tell my story here hoping it helps someone else with the same issues and save them the couple of hours I just spent:
I have mingw (g++ (GCC) 4.6.1) and python 2.7.3 in a windows 7 box and I'm trying to install PyCrypto.
It all started with this error when running setup.py install:
error: Unable to find vcvarsall.bat
Easily solved after googling the error by specifying mingw as the compiler of choice:
setup.py install build --compiler=mingw32
The problem is that then I got a different error:
configure: error: cannot run C compiled programs.
It turns out that my anti-virus was blocking the execution of a freshly compiled .exe. I just disabled the anti-virus "resident shield" and went to the next error:
cc1.exe: error: unrecognized command line option '-mno-cygwin'
error: command 'gcc' failed with exit status 1
This solved it: "Either install a slightly older version of MinGW, or edit distutils\cygwinccompiler.py in your Python directory to remove all instances of -mno-cygwin." (from here)
Now, I can finally start working.