1. update ubuntu source and hardware
  sudo apt-get update
  sudo apt-get upgrede

2. install ruby
   sudo apt-get install ruby-full
   Or
   sudo apt-get install ruby irb ri rdoc ruby-dev
   ruby -v # => 1.8.7

3. install rubygems
   sudo apt-get install rubygems
   sudo gem update
   sudo gem update --system

   gem -v # => 1.3.1

4. install mysql
    sudo apt-get install mysql-server libmysql-ruby libpq-dev

5. intall Mongrel
   sudo apt-get install install build-essential
   sudo gem install mongrel

6. install rails
   sudo gem install rails
 
  $ export PATH=/var/lib/gems/1.8/bin:$PATH
   Or
   sudo gedit ~/.bashrc  add export PATH=/var/lib/gems/1.8/bin:$PATH to the file and refresh with the source

   rails -v # => 2.3.2

7. create rails application
   rails demo
   cd demo
   ./script/server

That's it.