struggling with upgrade from 1.1.6

perhaps I did it backwards but I upgraded rails before rubygems but it
should work but doesn't. (I've since done a gem cleanup)

In a brand new rails directory...

$ script/server --trace
./script/../config/boot.rb:29: undefined method `gem' for main:Object
        from script/server:2:in `require'
        from script/server:2

$ gem list

*** LOCAL GEMS ***

actionmailer (1.3.3)
    Service layer for easy email delivery and testing.

actionpack (1.13.3)
    Web-flow and rendering framework putting the VC in MVC.

actionwebservice (1.2.3)
    Web service support for Action Pack.

activerecord (1.15.3)
    Implements the ActiveRecord pattern for ORM.

activesupport (1.4.2)
    Support and utility classes used by the Rails framework.

hoe (1.2.0)
    Hoe is a way to write Rakefiles much easier and cleaner.

paginator (1.0.9)
    A generic paginator object for use in any Ruby program

postgres (0.7.1)
    The extension library to access a PostgreSQL database from Ruby.

rails (1.2.3)
    Web-application framework with template engine, control-flow layer,
    and ORM.

rake (0.7.2)
    Ruby based make-like utility.

rmagick (1.15.5)
    RMagick is an interface between the Ruby programming language and
    the ImageMagick and GraphicsMagick image processing libraries.

rubyforge (0.4.1)
    A simplistic script which automates a limited set of rubyforge

rubygems-update (0.9.2)
    RubyGems Update GEM

sources (0.0.1)
    This package provides download sources for remote gem installation

this should be simple but nothing on the net has helped me solve it.

seems that one more 'gem update --system' took care of things...I don't
know why I had to do that one more time but nevermind.