There is a problem during Rally App SDK 2.0p environment setup on Windows 7 (64-bit). I have installed Ruby 1.8.7-p358 from rubyinstaller.org and managed to install rake Rub
For building gem native extensions in Windows when you install a gem, you usually need the DevKit installed too:
http://rubyinstaller.org/downloads/ - go to the devkit download link
Their github page has instructions for installing it: https://github.com/oneclick/rubyinstaller/wiki/Development-Kit
I would also recommend using Ruby 1.9.3 instead of 1.8.7, but that shouldn't be much of an issue
Hope that helps.