Vell, with your setup as far as I can see, you can without changing the apache site and localhost files at all.
You can create a symbolic link from your /var/www directory to your Rails directory, something along these lines:
$sudo ln -s /home/vmcilwain/www/site/public /var/www/site
Now, if you go to http://localhost/site you should get your Rails site up.
Of course, it is different if you want to be able to get your site to answer to http://localhost directly. One way I have achieved this is to edit /etc/apache2/sites-available/default (only change is at top, DocumentRoot, and removing the <directory /var/www> section which isn't really necessary):
<VirtualHost *:80>
ServerAdmin webmaster@localhost
DocumentRoot /home/binni/mysite/public
<Directory />
Options FollowSymLinks
AllowOverride None
</Directory>
ScriptAlias /cgi-bin/ /usr/lib/cgi-bin/
<Directory "/usr/lib/cgi-bin">
AllowOverride None
Options +ExecCGI -MultiViews +SymLinksIfOwnerMatch
Order allow,deny
Allow from all
</Directory>
ErrorLog ${APACHE_LOG_DIR}/error.log
# Possible values include: debug, info, notice, warn, error, crit,
# alert, emerg.
LogLevel warn
CustomLog ${APACHE_LOG_DIR}/access.log combined
Alias /doc/ "/usr/share/doc/"
<Directory "/usr/share/doc/">
Options Indexes MultiViews FollowSymLinks
AllowOverride None
Order deny,allow
Deny from all
Allow from 127.0.0.0/255.0.0.0 ::1/128
</Directory>
</VirtualHost>
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