I don't know if I can help but:
gem list -v 1.2.5 --remote rails
*** REMOTE GEMS ***
rails (2.3.2)
$ gem list --remote rails
*** REMOTE GEMS ***
rails (2.3.2)
Which makes it look to me as if the gem command is only seeing version 2.3.2 of rails on rubyforge or github.
I just updated to the latest version of gem and get the same thing.
Rubyforge problem?