No worries... just to put closure on the thread, the issue I had was
that passenger was spawning processes as "nobody" and "nobody" did not
have access to the sphinx commands, which is a different user. The way
to fix that is set nginx.conf passenger config as following, under the
passenger_root and passenger_ruby settings:
passenger_root /usr/local/ruby-enterprise-1.8.6-20090610/lib/ruby/
gems/1.8/gems/passenger-2.2.4;
passenger_ruby /usr/local/ruby-enterprise-1.8.6-20090610/bin/ruby;
passenger_user_switching off;
passenger_default_user <your default user to spawn off rails
processes>;
Manish