Update #3: Starting over from scratch, shortened this post, decided to re-install a clean copy of Ubuntu 10.04 on a VM and go through the walk-through again. So, all the steps go without a hitch. As root:

root@ubuntu:~/rubygems-1.3.7# ruby -v
ruby 1.8.7 (2010-01-10 patchlevel 249) [x86_64-linux]
root@ubuntu:~/rubygems-1.3.7# gem -v
1.3.7
root@ubuntu:~/rubygems-1.3.7# rails -v
Rails 2.3.8

Now, as myself (in a separate term):

emptyset@ubuntu:~$ ruby -v
ruby 1.8.7 (2010-01-10 patchlevel 249) [x86_64-linux]
emptyset@ubuntu:~$ gem -v
/usr/local/lib/site_ruby/1.8/rubygems.rb:10:in `require': no such file to load -- rubygems/defaults (LoadError)
    from /usr/local/lib/site_ruby/1.8/rubygems.rb:10
    from /usr/local/bin/gem:8:in `require'
    from /usr/local/bin/gem:8
emptyset@ubuntu:~$ rails -v
bash: /usr/bin/rails: Permission denied

So, this appears to be a permissions issue, but I don't understand why. Specifically, if I have to start making things go+rx all over the place, I really need to understand which specific files need the permissions change.