Hi,
I managed to pull the trick:
The \lib\ folder is incomplete in the download of Ruby 1.8.5 therefor 
need to resort to some simple hacks.

  ex.)
    ruby source directory:  F:\temp\ruby\r3\ruby-1.8.5
    build directory:        F:\temp\ruby\bi3
    install directory:      F:\temp\ruby\bi3

    cd D:\build\ruby
    C:\src\ruby\win32\configure
    nmake
    nmake test
    nmake DESTDIR=C:/usr/local install

copy version.h from Ruby 1.8.4
F:\temp\ruby\bi3\bin>F:\temp\ruby\r3\ruby-1.8.5\win32\configure.bat
F:\temp\ruby\bi3\bin>NMAKE
F:\temp\ruby\bi3\bin>NMAKE test
F:\temp\ruby\bi3\bin>nmake DESTDIR=F:\temp\ruby\bi3 install
Copy \lib\ folder from Ruby 1.8.4

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