Vanilla 1.1.8 is a product of Lussumo. More Information: Documentation, Community Support.
Previously it was recommended to use Gem version 1.1.0 over 1.1.1 because of a memory leak. Unfortunately, due to recent empricial evidence gathered by a number of frustrated users, gem 1.1.0 appears to no longer work. I'm not sure why but it seems to fail on parsing the updated source index.
So for now, you may consider upgrading to a larger size to finish the gem install because it will want to use all of your ram, and then some. I'm looking into RubyGems personally to hopefully bring down the ridiculous ram overhead.
This should help install it:
wget http://rubyforge.org/frs/download.php/35283/rubygems-1.1.1.tgz
tar zxvf rubygems-1.1.1.tgz
cd rubygems-1.1.1/
sudo ruby setup.rb
Looks like 1.2 is just on the horizon.
Paul's reporting that 1.1.0 is working again.
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