I experienced this situation.. I don't know exactly, but can you check your mongrel directory's name? Maybe It is not "mongrel-1.1.1-x86-mswin32-60" Just change the directory name to "mongrel-1.1.1-x86-mswin32-60" It works very well when you start mongrel server on command line But, while you are using the radrails IDE, It doesn't recognized the mongrel server where it installed nor.
I had the same problem after updating RubyGems to 0.9.5 from 0.9.4 (and updating Rails to 2.0 from 1.2.6). I tried the suggestion to simply rename the folder to 'mongrel-1.1.1-x86-mswin32-60' from 'mongrel-1.1.2-win32'. Works for me on command line and NetBeans.
I notice that RubyGems 0.9.5 doesn't ask which version to install, looks like it brings in the latest version for your environment.
