Gem.path is undefined when rack1.9.1 gems:unpack

I ran into the same problem. Attached is the patch I used to work around it (invoking gem command directly, like you did).

Then I ran into the same problem with rake rails:freeze:gems. Here was my workaround for that:

--- /var/lib/gems/1.9.1/gems/rails-2.3.5.orig/lib/tasks/framework.rake   2010-03-08 16:06:40.000000000 -0800
+++ /var/lib/gems/1.9.1/gems/rails-2.3.5/lib/tasks/framework.rake   2010-03-08 16:35:25.000000000 -0800
@@ -24,11 +24,18 @@
       begin
         chdir("vendor/rails") do
           rails.dependencies.select { |g| deps.include? g.name }.each do |g|
-            Gem::GemRunner.new.run(["unpack", g.name, "--version", g.version_requirements.to_s])
+            #Gem::GemRunner.new.run(["unpack", g.name, "--version", g.version_requirements.to_s])
+            command = ['gem', "unpack", g.name, "--version", g.version_requirements.to_s].map{|a| a.gsub(/= /, '=')}.join(' ')
+            puts command
+            system command
+
             mv(Dir.glob("#{g.name}*").first, g.name)
           end
 
-          Gem::GemRunner.new.run(["unpack", "rails", "--version", "=#{version}"])
+          #Gem::GemRunner.new.run(["unpack", "rails", "--version", "=#{version}"])
+          command = ['gem', "unpack", 'rails', "--version", version.to_s].map{|a| a.gsub(/= /, '=')}.join(' ')
+          puts command
+          system command
           FileUtils.mv(Dir.glob("rails*").first, "railties")
         end
       rescue Exception