... why ...

Hmm, found a bug, exec appears to cache path, so it works even if you undef $ENV{PATH}, where as system fails -- I still can't replicate the OPs condition :)

# path is undef from perl, system fails

$ perl -V:yo -Te " undef $ENV{PATH}; system q/perl -e die /"
yo='UNKNOWN';
[download]

# path is undef from perl, exec succeeds

$  perl -V:yo -Te " undef $ENV{PATH}; exec q/perl -e die /"
yo='UNKNOWN';

$ Died at -e line 1.
[download]

# path is undef from cmd.exe, exec fails

$ set path=

$ C:\perl\5.12.2\bin\MSWin32-x86-multi-thread\perl.exe -V:yo -Te " und
+ef $ENV{PATH}; exec qw/perl -e die /"
yo='UNKNOWN';
[download]

# using the shell works, perl dies

$ perl -le "  exec q{C:\WINDOWS\system32\cmd.exe /x /c }.qq{\x22perl -
+e die\x22};  "

$ Died at -e line 1.
[download]

# works , absolute path, cmd successfully launched, fails to find perl

$ perl -le " undef $ENV{PATH}; exec q{C:\WINDOWS\system32\cmd.exe /x /
+c }.qq{\x22perl -e die\x22};  "

$ 'perl' is not recognized as an internal or external command,
operable program or batch file.
[download]

# shouldn't work, cmd.exe is still found but it shouldn't be found with a relative path and undef PATH

$ perl -V:yo -le " undef $ENV{PATH}; exec q{cmd.exe /x /c }.qq{\x22per
+l -e die\x22};  "
yo='UNKNOWN';


$ 'perl' is not recognized as an internal or external command,
operable program or batch file.
[download]

# works, cmd.exe is not found

$ set path=

$ C:\perl\5.12.2\bin\MSWin32-x86-multi-thread\perl.exe  -V:yo -le " un
+def $ENV{PATH}; exec q{cmd.exe /x /c }.qq{\x22perl
 -e die\x22};  "
yo='UNKNOWN';
[download]

http://perl5.git.perl.org/perl.git?a=search&h=HEAD&st=grep&s=_exec

Perl_do_exec http://perl5.git.perl.org/perl.git/blob?f=win32/win32.c#l762

win32_execvp http://perl5.git.perl.org/perl.git/blob?f=win32/win32.c#l3644

win32_spawnvp http://perl5.git.perl.org/perl.git/blob?f=win32/win32.c#l3471