Error creating controllers in InstantRails-1.3a

Hi,
I was able to successfully Install InstantRails-1.3a and run cookbook throgh Apache and WEBrick , however when I try to create my own app. cookbook2 following tutorial ( http://instantrails.rubyforge.org/tutorial/index.html) , it gives me below error whle creating MyTest controller

Cannot find gem for Rails =1.1.2:
    Install the missing gem with 'gem install -v=1.1.2 rails', or
   ; change environment.rb to define RAILS_GEM_VERSION with your desired version.

I looked at environment.rb of cookbook and it does NOT define RAILS_GEM_VERSION, however cookbook2's environment.rb DOES define it, when I make it same as cookbook's ( i.e. comment it ) then I get below error

E:\InstantRails\rails_apps\cookbook2>ruby script\generate controller MyTest
E:/ruby/lib/ruby/site_ruby/1.8/rubygems.rb:204:in `report_activate_error': Could
 not find RubyGem rails (> 0.0.0) (Gem::LoadError)
        from E:/ruby/lib/ruby/site_ruby/1.8/rubygems.rb:141:in `activate'
        from E:/ruby/lib/ruby/site_ruby/1.8/rubygems.rb:37:in `require_gem_with_
options'
        from E:/ruby/lib/ruby/site_ruby/1.8/rubygems.rb:31:in `require_gem'
   ;     from ./script/../config/boot.rb:38
      ;  from E:/ruby/lib/ruby/site_ruby/1.8/rubygems/custom_require.rb:21:in `re
quire'
        from script/generate:2


What am I missing here ??
-TIA

Pankaj