I tried various ways to handle the problem - apc and xcache both didn't work with my version of php and apache on windows. Then one day it occurred to me - apc is just an elaborate in-memory cache, so why dont I put my cakephp cache files in memory?
So started search for a (free) RAM Disk. After trying few, I found Dataram RAM Disk was the only one that didn't crash on Vista. Those folks have done a good job with their product. I just need a 10M disk, so their free option works well for my dev server.
Next updated the core.php with:
Cache::config('_cake_core_', array(
'engine' => 'File',
'path'=> 'E:/',
));