Hi Bill,
MySQL is almost a de facto standard for web development, and most people are so ignorant that they think MySQL is the only RDBMS that plays nicely with any platform. Obviously, it may be the most widely used RDBMS in web apps, therefore, you will find much more volunteers to add support for it. But, as far as I know Postgres plays nicely with Rails. I haven't tried it myself, but I have had people report that it does work nice with it.
It is true that Rails does not work nicely with a few RDBMSs, but that has to do with the fact that the majority work with MySQL, hence you will tend to get more support for MySQL.
If you don't want to lose the contract, then just do what they say: go with MySQL. The only problem that I see with MySQL is the licensing scheme, which isn't very attractive.
Fidel.
