In case anyone else is having the same problems I was setting up Ruby on Rails on Netbeans -
First there were two different installations of gems because OSX and Netbeans each came with one. There were issues with updating them and differentiating which was getting update. Netbeans wouldn't see the right one. There were issues with one not running as root and so not getting updated.
Netbeans wouldn't change the path to what it was using. Finally, after many hours of various people as well as myself working on it, the solution was to create the project on the command line and then to import it into Netbeans as a "new project from an existing source". (Sarah Allen found the solution - thank you Sarah!)
I am understating the amount of pain getting this set up took. At different times three separate engineers who were helping asked "Why do you want to use Netbeans?" By then I wanted to use it simply to understand what I was doing wrong and out of sheer stubbornness or something... I would still be struggling with it if not for so much super help! I am very grateful to everyone who helped me. I am very lucky to have so much support!