What would I do now, with the benefit of hindsight?
First, why change your existing ruby and gems installation? If it works, you’re done. Wait till the kinks are worked out before investing your time.
If you really want to use the leopard versions of ruby and rails, don’t install leopard… Not Yet!
Remove all of your existing gems, using “sudo gem uninstall [gem name here]. You don’t need them in their current location. Remove them first while you can use the gem utility. This will remove them both from the gem install directory and also from the /usr/local/bin directories (for gems that have bins).
Uninstall ruby using the commands listed above.
Now install leopard.
Update xcode from the leopard install disk.
Do not gem update —system (see this thread on apple’a ruby support discussion)