When installing Rails Installer on Windows...

install in a directory without spaces. i.e. C:\, not C:\Program Files.

I spent at least 10 hours fixing bug after bug to get Rails functioning and even then I might run into more bugs.
Save yourself the trouble and reinstall into a root directory.
(I commented in fixes that have worked for me on StackOverflow. Feel free to look but I strongly recommend reinstalling. Your time is better spent elsewhere.)

Side note: A gem used in a different tutorial (http://railscasts.com/episodes/328-twitter-bootstrap-basics) had compatibility issues with Ubuntu. Looking forward to setting up Rails on Ubuntu again but first I rather make than fix.