I upgraded my ruby to 1.9.2 and now when I try to start up a Rails 2.3.5 app with script/server I get this error:
it's because ruby 1.9.2 doesn't add the current directory in the LOAD_PATH.
Add this that in top of your script/server file:
$: << File.dirname(__FILE__)
Or in your case:
$: << File.dirname(__FILE__) + '..'