That's exactly what I had to do: a local install of Ruby and rubygems, installed bundler, and let bundler take care of the rest (and let me know what -devel packages I didn't have installed ;-).

This will likely be a much less painful process in Fedora 14; 1.8.7 will be shipping with it, although unfortunately it looks like Rails 3 didn't make it in (at least, it's not in Rawhide right now).