In Dapper Drake, radrails 0.7.1 will fall over horribly when it tries to use /usr/bin/rails to create a new rails project.  This comes from the fact that /usr/bin/rails is actually a shell script, and RadRails is expecting a Ruby script.  The clue in the error is that the shell test fails with:

-e:3:in `load’: /usr/bin/rails:4: parse error, unexpected ‘=’, expecting ‘]’
(SyntaxError)
if [ "x$1" = "x" ]; then
^
/usr/bin/rails:4: parse error, unexpected ‘]’, expecting $
if [ "x$1" = "x" ]; then
^     from -e:3

Point radrails at /usr/share/rails/railties/bin/rails and life is good.