FWIW it fails for me in a different way:

C:\Documents and Settings\gavin.kistner>gem install nano
Attempting local installation of 'nano'
Local gem file not found: nano*.gem
Attempting remote installation of 'nano'
Updating Gem source index for: http://gems.rubyforge.org
ERROR:  While executing gem ... (Errno::EINVAL)
    Invalid argument - lib/nano/float/approx?.rb

C:\Documents and Settings\gavin.kistner>gem --version
0.8.10

C:\Documents and Settings\gavin.kistner>ruby --version
ruby 1.8.2 (2004-12-25) [i386-mswin32]