I tried upgrading my version of rubygems to the most current version by running
sudo gem update --system
Which introduced this error:
/usr/bin/gem:23: uninitialized constant Gem::GemRunner(NameError)
whenever I tried to run rubygems. On the rails forum, I found a fix for it!
Simply add the line to the file /usr/bin/gem (may be different on a mac)
This fixed the issue in both Ubuntu and OS 10.4.