Thanks Mukund- but that didn't do the trick either. This is what I did:
sudo gem install mysql -- 
--with-mysql-config=/usr/local/mysql-5.1.37-osx10.5-x86/bin/mysql-config

Even went back and tried:
sudo gem install mysql -- 
--with-mysql-dir=/usr/local/mysql-5.1.37-osx10.5-x86

Unfortunately nothing. Any other suggestions would be appreciated. I've 
been tackling this for few days now and can't seem to resolve it. :(
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