We have Rails 3.0.pre and Rails 2.3.5 running on App Engine. Rubygems has been disabled, but we use gem bundler to package gems. We are also using DataMapper instead of ActiveRecord. There are some issues with both these options, but we expect they will be resolved shortly. Special thanks to Yehuda Katz and Sasaki Takeru for making this happen!

See the Rails 2 Primer for more information.