OK, I seem to be working now. I uninstalled all my Ruby (version 1.8.2-14 Stable) and installed the latest version 22.214.171.124 Final.
What do I think happened? Well, during install, I got the same problem that onestar was describing below. When executing "gem install rails --remote", I would only get rails_analyzer installed. So I instead forced the install of the 0.9.4 version by specifying "-v 0.9.4" on the command line. I guess rails 0.9.4 and ruby 1.8.2-15 do not play well together.