If you're running OSX Snow Leopard and Macports MySQL, you might run into some drama trying to get Ruby and Mysql playing nicely together.
This can manifest itself in a number of ways, but the most common, I think, is what happened with me
aaron ~/Development/ruby/testapp $ rake db:create (in /Users/aaron/Development/ruby/testapp) Couldn't create database for {"reconnect"=>false, "encoding"=>"utf8", "username"=>"dbuser", "adapter"=>"mysql", "database"=>"testapp_development", "host"=>"127.0.0.1", "pool"=>5, "password"=>"testpwd"}, charset: utf8, collation: utf8_unicode_ci (if you set the charset manually, make sure you have a matching collation)
Seems the mysql driver gets confused a little bit as when you install the MySQL Rubygem as directed by Rake, you link against the bundled OSX MySQL and not the Macports one.
The solution is to install the mysql gem as follows (uninstalling it first, if necessary)
sudo env ARCHFLAGS="-arch x86_64" gem install mysql -- --with-mysql-config=/opt/local/bin/mysql_config5
Substitute the mysql_config5 path with your own macports mysql_config path. Afterwards, everything should work fine.
aaron ~/Development/ruby/testapp $ rake db:create (in /Users/aaron/Development/ruby/testapp)