Rails 3.0.0, Passenger 2.2.15:
gem \'paperclip\', :git => \'git://github.com/lmumar/paperclip.git\', :branch =
I had the same problem and it was due to a rights issue with RVM.
The user that run the web server can not check if GIT gem is available. As "Passenger" using the web user to run, it can not do this check.
The solution I found was to add web user to rvm group:
usermod -a -G rvm apache
I hope this will help some other people that don't want to have GEM deployed into "vendor/bundle".