It appears the problem is due to different environment files. I have absolutely no idea WHY it's a problem, knowing hardly any ruby or anything about the technical details of Rails.
I fixed the problem by replacing the Environments folder and the environment.rb file in the config folder with the corresponding files from the source zip of this tutorial.
I can only assume that in between this tutorial and now, rails has cahnged in some way to cause this error? Is is syntax or are the steps incorrect or out of date in some way?
If anyone who has gotten the tutorial to work in the past would take 10 minutes and run it again with the latest version of rails and the corresponding gems, it would be appreciated.