Since is seems strangely difficult to find a straight answer about getting Rails running on Dreamhost, here are the current versions of all the important programs:
_ \ _|_` | _` | | | -_)
Welcome to prague.dreamhost.com
Any malicious and/or unauthorized activity is strictly forbidden.
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[prague]$ ruby -v
ruby 1.8.7 (2008-08-11 patchlevel 72) [x86_64-linux]
[prague]$ rails -v
[prague]$ gem -v
[prague]$ bundle -v
Bundler version 1.0.7
Sun Mar 20 19:04:34 PDT 2011