Image tag helper not working for rails 3.1

Hi i am a ruby on rails programmer with almost a year experience i am having problems using the asset tag helper in rails 3.1. if i do something like <% image_tag('rails.png') %> the image does not get displayed. if i check my server log, i realized that it cannot find the image. That is for images. As for SCSS style sheet it works but whenever i refresh my browser i get a default template. then my server log says undefined method >= for nil:NillClass. i dont no what to do at this moment. if i switch to rails 3.0.7 it all works fine but SCSS does not work at all. I'm using railsinstaller 1.1.1 with ruby 1.8.7.

You need to use the <%= tag instead of the <% tag for the output of the method to display