Rexml - please help

The file name that you try to open is not a valid one, as the error
describe to you.
You should give a valid path to the desired file.
Since it is a Rails application you should build the path in this
fashion:

class Oxml
  def read_xml()
    xml = REXML::Document.new(File.open("#{RAILS_ROOT}/images/
guitars.xml"))
  end
end

Hpricot is, from my experience, much faster for reading, querying and
manipulating xml files.
You definitely should give it a try.