OK here is some good instructions that will take you step by step installing the whole ruby/rubygems/rails/lighttpd/fcgi/php stack. Hope it helps someone.

These instructions work on OSX, most linux distros and FreeBSD
You can skip ruby if you already have a good copy. But if you only have the
stock ruby that comes with OSX I would compile it from source and rename the
stock OSX ruby and irb to ruby.bak and irb.bak so you don't end up using
them on accident.
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Get Ruby1.8.2

curl -O http://rubyforge.org/frs/download.ph...y-1.8.2.tar.gz
tar xvzf ruby-*
cd ruby-1.8.2
./configure
make
make test
sudo make install
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Get Ruby gems

curl -O http://rubyforge.org/frs/download.ph...ems-0.8.10.tgz
tar xvzf rubygems*
cd rubygems*
sudo ruby setup.rb
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Get Rails and a few other gems

sudo gem install rails RedCloth search_generator salted_login_generator production_log_analyzer
answer yes to all dependencies
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Get mysql-ruby C bindings (the pure ruby ones suck)
This command works great on osx as well using the mysql 4.1.x installer from mysql.com
or the serverlogistics.com mysql as well.

curl -O http://www.tmtm.org/en/mysql/ruby/mysql-ruby-2.7.tar.gz
tar zxvf mysql-ruby-*
cd mysql-ruby-*
ruby extconf.rb --with-mysql-config
make
sudo make install
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download fastcgi developers kit

curl -O http://fastcgi.com/dist/fcgi.tar.gz
tar xvzf fcgi-2.4.0.tar.gz
cd fcgi*
./configure
make
sudo make install
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Get the new non memory leaking ruby-fastcgi bindings

curl -O http://sugi.nemui.org/pub/ruby/fcgi/...i-0.8.6.tar.gz
tar xzvf ruby-fcgi*
ruby install.rb config --without-ext
ruby install.rb setup
sudo ruby install.rb install
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We need the correct pcre .soís for lighttpd to work correctly

curl -O ftp://ftp.csx.cam.ac.uk/pub/software...cre-5.0.tar.gz
tar xzvf pcre-5.0.tar.gz
cd pcre-*
./configure
make
sudo make install
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Get lighttpd
You can install lighttpd 1.4.4 if you want. I'm still using 1.3.16 until
the 1.4 branch settles down.

curl -O http://www.lighttpd.net/download/lighttpd-1.3.16.tar.gz
tar xzvf lighttpd-1.3.13.tar.gz
cd lighttpd-*
./configure
make
sudo make install
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Compile php as a fast-cgi binary The main thing here is the following configure options. You can add whatever else you like to your php binary but these are needed for fast-cgi support.

$ ./configure \
--enable-fastcgi \
--enable-discard-path \
--enable-force-cgi-redirect \
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Lighttpd Launcher Script

Here is a link for a sweet enhancement. Put this script in your RAILS_ROOT/script folder and put the lighttpd.conf file in RAILS_ROOT/config. Now you can launch your rails app by cdíing into your RAILS_ROOT for your app and typing:
$ruby script/lighty -p 7500 -e development (or whatever port & env you want to use)

Now you can hit http://localhost:7500/ and you will get your app running on lighttpd no muss no fuss. Very sweet for development. Here is the link: http://www.bigbold.com/snippets/posts/show/303 . Name the first ruby script lighty and name the config file lighttpd.conf. Now every time you start your app this way is creates a new lighttpd.conf in /tmp and starts lighttpd up with that file. This way you can give it command line options as to what port to bind to and others. Iím using this for development and it is sweet!