Trouble upgrading rails

Hi folks. I'm trying to upgrade a rails app from 1.2.4 to 2.0.1. I gem
installed the latest rails, but when I try to run:

rake rails:gems:freeze

I get:

C:\webapps\npl>rake rails:gems:freeze
(in C:/webapps/npl)
Cannot find gem for Rails =1.2.1:
    Install the missing gem with 'gem install -v=1.2.1 rails', or
    change environment.rb to define RAILS_GEM_VERSION with your desired
version.

I'm on win32 running ruby 1.8.6. I had rails frozen in my app at 1.2.4.
I've tried changing RAILS_GEM_VERSION in environment.rb from 1.2.4 to
2.0.1 and uncommenting, seems to make no difference.

I'm quite puzzled as to why rake, and indeed, any of the rails tasks
(ruby script\console, for instance) are all failing while looking for
rails 1.2.1; I don't believe I've ever used that particular version.
That mystery aside, any suggestions for upgrading, other than creating a
new rails project anew and copying the relevant files over?

- donald