The main advantages of storing images in database for me is that: - images are treated the same way as any other data - no need to juggle with file system operations (especially deleting image files from filesystem) - very easy to move and backup data (just backup database, and not database _plus_ images directory)
I personally use FlexImage, which in turn relies on RMagick, which in
turn requires either GraphicsMagick or ImageMagick to be installed,
which in turn.. 
But once you build the whole chain at least once,
this is actually the easiest setup I have ever used.
Also, kind of off-topic, but I've heard you're better of as Mongrel as a web-server, especially during the development period. There were stories when Webrick didn't reload changed files and stuff like that.. Myself, I use Mongrel on both development (plain mongrel) and production (mongrel cluster) systems.