I\'m a complete n00b on Rails with only beginner knowledge of Ruby. I plan on studying Ruby more before I really learn Rails, but I\'m waayy too curious for my own good.
I had this error appear with the same version of Ruby / Rails / SQLite that you specified in your question even after confirming that my gemfile has gem 'sqlite3'. I don't know what OS you have (which is why you were down-voted probably) but I am using Windows 7 x64.
In order to get the gem to be installed in my Rails application, I needed to edit the Gemfile.lock file to replace sqlite3 (1.3.7-x86-mingw32) with sqlite3 (1.3.7)
Then, after running bundle install I finally see in the output
Using sqlite3 (1.3.7)
Upon running rails server, I (finally) see the "Welcome aboard" page.