You might want to consider adding your own gem library. I’ve got a few sites on DH and all of them have required various gems which aren’t installed. http://wiki.dreamhost.com/index.php/RubyGems
has a fairly good explanation of how to do it.
This is a good question. In the past, we've learned to be very mindful
of existing customers not locking their applications to specific
versions and have taken a "upgrade when asked" approach. Most of our
customers are savvy developers and know how to use the rake tasks to
include whatever version of Rails that they want in vendor/.
This is what we encourage customers that host with us at PLANET ARGON.