A brand-new rails project (tested with 1.2.4 and 1.2.5) will fail when starting the server:
$ ./script/server
=> Booting Mongrel (use 'script/server webrick' to force WEBrick)
=> Rails application starting on http://0.0.0.0:3000
=> Call with -d to detach
=> Ctrl-C to shutdown server
** Starting Mongrel listening at 0.0.0.0:3000
** Starting Rails with development environment...
Exiting
/usr/lib64/ruby/gems/1.8/gems/activesupport-1.4.4/lib/active_support/dependencies.rb:477:in `const_missing': uninitialized constant XSD::NS::KNOWN_TAG (NameError)
from /usr/lib64/ruby/gems/1.8/gems/soap4r-1.5.8/lib/soap/ns.rb:18
from /usr/lib64/ruby/site_ruby/1.8/rubygems/custom_require.rb:27:in `gem_original_require'
from /usr/lib64/ruby/site_ruby/1.8/rubygems/custom_require.rb:27:in `require'
from /usr/lib64/ruby/gems/1.8/gems/activesupport-1.4.4/lib/active_support/dependencies.rb:495:in `require'
from /usr/lib64/ruby/gems/1.8/gems/activesupport-1.4.4/lib/active_support/dependencies.rb:342:in `new_constants_in'
from /usr/lib64/ruby/gems/1.8/gems/activesupport-1.4.4/lib/active_support/dependencies.rb:495:in `require'
from /usr/lib64/ruby/gems/1.8/gems/soap4r-1.5.8/lib/soap/generator.rb:10
from /usr/lib64/ruby/site_ruby/1.8/rubygems/custom_require.rb:27:in `gem_original_require'
... 73 levels...
from /usr/lib64/ruby/gems/1.8/gems/rails-1.2.5/lib/commands/server.rb:39
from /usr/lib64/ruby/site_ruby/1.8/rubygems/custom_require.rb:27:in `gem_original_require'
from /usr/lib64/ruby/site_ruby/1.8/rubygems/custom_require.rb:27:in `require'
This has been well documented in the soap4r trac ( http://dev.ctor.org/soap4r/ticket/433 ) and it seems that the resolution is that it needs to be fixed in rails.