"root" needs to point to the /public directory of your Rails app. And I don't think you need to use passenger_base_uri
My nginx using passenger config looks like:
server {
listen 80;
server_name XXXXXX;
root /home/deploy/apps/wtca/current/public;
passenger_enabled on;
Posted at Nginx Forum:
http://forum.nginx.org/read.php?2,248743,248744#msg-248744
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