gem update --system not updating....

Yes, I'm a nubie. Trying to learn ruby and rails and have a very
frustrating problem.

Running Ubuntu 8.0.4
$ ruby -v
ruby 1.8.6 (2007-09-24 patchlevel 111) [x86_64-linux]
$ gem -v
1.2.0
$ rails -v
Rails 2.3.2

I create a dir called tickets, traverse to that dir and run the
following command:
$ ruby scripts/server
Rails requires RubyGems >= 1.3.1 (you have 1.2.0). Please `gem update
--system` and try again.

OK, so I run the gem update command as instructed...
$ gem update --system
Updating RubyGems
Nothing to update
$
So what is the problem. How can a I force this thing to update to gems
1.3.1?

Hep much appreciated

There was a bug in rubygems 1.2 & 1.1 that meant it was unable to self
update in some cases. See http://blog.segment7.net/articles/2008/11/13/rubygems-1-3-1

Fred