You can your PATH variable to have /usr/local/bin come first. I don't
have Leopard so I can't check the defaults, but if the system (/bin)
directories (or wherever they put are not listed in your home folder
bash profile (~/.bash_profile), then check the root-level (/etc/
profile) configuration, and insert it there. Since it's at the root
level, you can only change it like this:
sudo vim /etc/profile (entering your admin password thereafter)
/etc/profile is loaded before any user profiles, and it affects the
PATH environment variable of ALL users of your Mac. (It won't hurt
anyone who doesn't use anything in /usr/local/bin, it just ensures
that binaries there have precedence.)
The version of ruby isn't the only thing, though. The error shown
below is telling you that the rails gem being asked for in
environment.rb is not the same one it sees. I'm not sure if changing
the path (to see the version of ruby you want) will affect where it
looks for gems, but it might. Try it and see.