Hi Prasad,
We're having the same problems, but with the ferret gem and the acts_as_ferret plugin. We have the same symptoms that you have: Not able to start/run the application with the plugin in the directory, can run the application after removing the plugin. See additional notes and questions at http://bluehostforums.com/showthread.php?p=53899
My hunch is that it has to do with the GEM_PATH, but I'm not sure. Let me know if you solve it.
Thanks,
Terri



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