Depends on how good sys admin you are. VPS/Slice is better in my opinion.
I would recommend Dreamhost as a rails host. They were probably the first ones to use Phusion Passenger.
They don’t cost much, and they also have a dedicated host for you.
I use them for one of my high traffic site (compared to the traffic the other sites get).
You get pretty much unlimited disk space, unlimited mysql, unlimited subdomains and unlimited bandwith.
My above statement obviously does not matter if you get to twitter/facebook fame, but for any site dreamhost is your site.
I have heard quite a few people complain abut them, but they have always answered me on support, and always when something goes wrong, it is my fault. I have been with them for 4-5 years now.
You do get a discount by telling them my e-mail address, and you get 97 days money paid back no questions asked. They currently have rails 2.2.2 on the server I use, but I am quite sure if you ask, they will move you to a server which has 2.3.3 if that is a must.
Also, I might add, I also have bough a slice at Slicehost.com (DHH blogged about them once). They offer great service and fantastic prices, BUT you have to do everything your self. You have to setup and maintain database, webserver, firewalls and everything else.
As with dreamhost, put in my e-mail address and you also get a no question asked money back guarantee.
Slicehost knows Ruby on Rails extremely well, as does dreamhost. They have both offered advice and support for free.
Check these two out. I will say that I have no affiliations with either one company, except I am a customer.
Hope this helps somewhat,