I am testing orgmode in Ubuntu 12.04. The host is a VM in oracle virtual box (ver 4.1.18) in Windows 7. Here the emacs version is 23.3.1. I am using the default org-mode here.

Within the host, I opened an org file with the emacs. Now it can hide the stars.
However, interestingly, when I ssh-ed into the host with 'putty' and opened the same file with emacs, it shows the stars.

Then I tried it in the latest cygwin. Here, the stars are not hidden.

The org flie has the following entry --

#+STARTUP: hidestars