THE SITUATION:
I have code in lib/foo/bar.rb
with a simple method defined as such:
module Foo
class Bar
Autoloading code from the lib folder was intentionally disabled in rails3, see this ticket for more details.
The workaround suggested by Samuel is a great start, however I found that certain environments still had difficulty finding the libraries in a testing environment (say being invoked from a cucumber scenario), and that including the root path, as suggested within the ticket and hinted by the original comment in application.rb was a more robust approach:
config.autoload_paths += %W(#{config.root}/lib)