Shane, from that same directory type in gem list
If it lists rails in the gems from that directory, you should be good to go. If the list is long, you can narrow it with: gem list ra
That will only list gems starting with ra
You may need to set your paths. This is important. double check it with the Hivelogic tutorial. Also there is now a Ruby 1-click-installer for OS X Regardless, you may likely have a path issue.