I replaced the giant setup.rb with a small one we can easily debug.   
It seems to fix all the issues people have been having.

Please test it out on windows, I do not have one of those set up for  
development.

It also comes with --no-rdoc and --no-ri, and the gem updater has  
been hooked into those options (and --prefix).  I still need to set  
up and test updating through `gem update --system`, its a bit more work.

What's not well-documented is the difference between --prefix and  
GEM_HOME, defining both to be the same is certainly not what people  
want.  (This is true with all versions of RubyGems.)
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