We've been building Rails applications for over a year now. Some run on linux and others on Windows Server 2003. In general Rail has been a difficult sell to Microsoft Shops and our main success has been one organisation for whom the bottom line of cost & time was more important than any other consideration. We can build Rails apps in about 40% of the time it would take us to do the same in ASP.Net.
We run a blog that contains our notes on the issues and observations that we've come across whilst developing in Rails so we do get a lot of hits from developers searching Google for issues associated with Rails such as RJS & Rake Migrations. What's been particularly interesting is the recent surge in hits on our site related to Windows, SQL Server & Rails. We're assuming that Microsoft Shops have started to use the framework. This could be due to the current economic downturn so like our client above, the bottom line is everything no matter what your strategic interests may be. It could also be due to the adoption of the Ruby programming language by Microsoft in Dot Net 3 as Iron Ruby although Iron Ruby is likely to be used more with the new ASP.Net MVC framework than with Rails but that's something for the future and Rails can save you a bucketload of trouble, time & cash today.
Whatever the reasons, Rails is a great tool for intranet applications, is deployed very easily on Windows Server and integrates easily with SQL Server.
Rails can run on a number of different servers but in our experience one easy way to get started that also seems most acceptable to tech support people used to running a typical Microsoft set-up is to install each applications as a windows service running in the Mongrel web server.
In a nutshell you install Ruby and Rails first then mongrel and the mongrel web service second.
Thus far we have four applications running in this way and they've not been a problem. There is a down-side, each mongrel service has to have its own port number when running on the same machine so this form of deployment is more suitable to internal intranet applications than external web applications needing port 80.
Hope this was of some help and feel free to contact us if you have any questions.

