Dunno if this will help, since you're on Windows and I'm on Mac OS,
but I just built and installed a simple test gem using the following steps:

11:36 ~/projects/testcases/gems $ bundle gem xyz
11:37 ~/projects/testcases/gems $ cd xyz
11:44 ~/projects/testcases/gems/xyz (master)$ vim lib/xyz.rb
11:44 ~/projects/testcases/gems/xyz (master)$ vim lib/xyz.gemspec
11:44 ~/projects/testcases/gems/xyz (master)$ gem build xyz.gemspec
11:45 ~/projects/testcases/gems/xyz (master)$ gem install --local xyz
11:46 ~/projects/testcases/gems/xyz (master)$ gem list --local

*** LOCAL GEMS ***

bundler (1.2.1)
rvm (1.11.3.5)
xyz (0.0.1)

HTH!
-- 
Hassan Schroeder ------------------------ hassan.schroeder / gmail.com
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twitter: @hassan