Dreamhost… you win… or lose really.

You have already activated rack 1.1.0, but your Gemfile requires rack 1.2.1. Consider using bundle exec.

So with the impending release of Rails 3 there is a little dependency that was added. Rack 1.2.1. Dreamhost is using passenger which also requires a version of Rack. The problem is that it’s 1.1.0. I’m pretty sure it’s not going to be possible to get Rails 3 running on Dreamhost without the servers being upgraded…

If you’re a Dreamhost customer please be sure to vote this suggestion up.
Get Ready for Rails 3

Please be sure to file a support ticket as well.

For me, if this isn’t fixed within the next few weeks I plan on moving to linode.com