Here is my config file. It took some wrestling but now it is working. I am using windows server, msysgit and beyond compare 3 (apparently an x86 version). Youll notice that I dont need to specify any arguments, and I use "path" instead of "cmd".
[user]
name = PeteW
email = [email protected]
[diff]
tool = bc3
[difftool]
prompt = false
[difftool "bc3"]
path = /c/Program Files (x86)/Beyond Compare 3/BComp.exe
[merge]
tool = bc3
[mergetool]
prompt = false
keepBackup = false
[mergetool "bc3"]
path = /c/Program Files (x86)/Beyond Compare 3/BComp.exe
trustExitCode = true
[alias]
dt = difftool
mt = mergetool