I'm not sure what's going wrong, but personally I'm not all too surprised there's an issue with signals and alarm on Windows.

You might want to use a module such as IPC::Run, as it specifically supports timing out the processes it runs (I think this should work on Windows too). There are examples in its documentation and I showed an example here: Re: how to stop command.

Update: Sorry, I should have tested first. Doesn't seem to work on Windows 7, in my test the process just ran however long it wanted and didn't get interrupted by IPC::Run's timeout.