I have a new rails application which I have created under Windows 7 by going into a directory and typing \"rails newapp\". The creation went fine, and when I access the root
This error occurs if you have a file with name "Program" in the root of your drive. Say for example you are trying to execute "C:\Program Files\SomeApp\Bin\SomeExe.Exe" it tries to execute "C:\Program" if it exists. In some situations a file with this name get created if you forget to quote "C:\Program Files..." with some commandline commands. This of course also applies for you D: drive, etc.
This error often occurs if you try to start services, but may occur in other situations.
Simply deleting the file C:\Program or D:\Program etc. solves the problem.