Just to add a success story.... I'm on Mac OS X 10.5.3. I had no
problems updating via

$ sudo gem update --system

earlier this morning.

Here's some system info:

$ gem env
RubyGems Environment:
  - RUBYGEMS VERSION: 1.2.0
  - RUBY VERSION: 1.8.6 (2007-09-24 patchlevel 111) [universal-darwin9.0]
  - INSTALLATION DIRECTORY: /Library/Ruby/Gems/1.8
  - RUBY EXECUTABLE:
/System/Library/Frameworks/Ruby.framework/Versions/1.8/usr/bin/ruby
  - EXECUTABLE DIRECTORY: /usr/bin
  - RUBYGEMS PLATFORMS:
    - ruby
    - universal-darwin-9
  - GEM PATHS:
     - /Library/Ruby/Gems/1.8
     - /System/Library/Frameworks/Ruby.framework/Versions/1.8/usr/lib/ruby/gems/1.8
  - GEM CONFIGURATION:
     - :update_sources => true
     - :verbose => true
     - :benchmark => false
     - :backtrace => false
     - :bulk_threshold => 1000
     - :sources => ["http://gems.rubyforge.org"]
  - REMOTE SOURCES:
     - http://gems.rubyforge.org
$

Updates from the merb source were choking with an error that it wasn't
at 1.2+, but I just removed the source, since I'm not doing much w/
merb right now.

Regards,
Craig