I finally got it working after a lot of googeling around  big thanks
to 
http://github.com/rails-sqlserver/activerecord-sqlserver-adapter/wiki/Platform-Installation---Windows
for pointing me towards ruby-odbc which was the final peice to solve
my puzzle

How to get Ruby on Rails working with MS SQLServer2008 and windows
server 2003
This mini tutorial assumes MS SQLServer2008 is installed and running i
will be using mongrel to deploy

1. Install ruby via www.rubyinstaller.org (i used 1.8.7 version)
2. Install the DevKit (otherwise all gems won´t install properly)
3. Start a  command promt with ruby via the start menu
4. Install rails
gem install rails
5. Get a cup of coffee this will take a while
6. install mongrel
gem install mongrel --pre (2010-10-27 this was the way to do it, this
will change)
7. install ruby-odbc
gem install ruby-odbc
8. install activerecord-sqlserver-adapter
gem install activerecord-sqlserver-adapter
9. install dbi
gem install dbi
10. install rails-dbi
gem install rails-dbi
NOTE: the reason for installing rails dbi and putting gem 'rails-
dbi', :require => 'dbi' in the gem file
is a conflict with the dbi and the deprecated gems. This issue migth
be resolved in the future.
11. Now its time to get on with editing our gemfile

put this in it

gem 'rails-dbi', :require => 'dbi'
gem 'ruby-odbc'
gem 'activerecord-sqlserver-adapter'
gem 'mongrel', '1.2.0.pre2' #this line will probably change in the
future this is written 2010-10-27


Then you need a connection string this will be in your config/
database.yml file


development:
 adapter: sqlserver
 driver: Sql Client
 mode: odbc
 database: DatabaseName
 host: localhost/SQLSERVER2008
 dsn: dsn_name
 autocommit: true
 username: user
 password: pass

NOTE:
# localhost migth suffice or if you have mutilple named instances like
me you have to include that as well
About dsn:
the dsn is created via the Data Sources(ODBC) tool under
administrative tools
Create a System DSN with the same name as dsn: dsn_name under client
configuration use TCP/IP(this should be default just adding this so
you know that this is correct)

now try to create a new project and a scaffold do a bundle install and
rake db:migrate if all went well you should be able to start your
server via rails server and start doing som CRUD against your
SQLServer2008 database

On 26 Okt, 15:18, Rodolinux <[email protected]> wrote:
> It's not my tutorial. Just I found it some days ago
>
> On Tue, Oct 26, 2010 at 9:41 AM, Fredrik TiC Jansson <
>
>
>
> [email protected]> wrote:
> > Thanks seems rather comprehensive i will go through your tutorial.
>
> > On 26 Okt, 13:18, Rodolinux <[email protected]> wrote:
> > > On Tue, Oct 26, 2010 at 5:41 AM, Fredrik TiC Jansson <
>
> > > [email protected]> wrote:
> > > > Hello i have been atempting to move a project from sqlite database to
> > > > a sql server database with absolutly no success. i am now going to
> > > > document my entire process so that mabey someone can se the error of
> > > > my ways. And if some one else has this problem this migth act as a
> > > > troubleshooting guide.
>
> > > > OS: windows server 2003 latest sp
> > > > Sql: Sql server 2008
>
> > > > 1. Install ruby 192.p0 fromhttp://rubyinstaller.com/downloads(ticked
> > > > both boxes ie add to PATH and associate files)
> > > > installation folder is c:/ruby192
>
> > > > 2.Install rails via
> > > > "gem install rails"
>
> > > > 3. Install mongrel via
> > > > "gem install mongrel --pre"
>
> > > > 4. install the sql adapter via
> > > > "gem install activerecord-swlserver-adapter"
>
> > > > 5. install dbd-odbc via
> > > > "gem install dbd-odbc"
> > > > this also installed the dbi gem so i wont install this from a separate
> > > > command
>
> > > > Ok now everything i need to start RoR with mongrel and Sql Server
> > > > should be installed as far as i know on to the gem file
>
> > > > gem 'rails'#, '3.0.1'
>
> > > > require 'activerecord-sqlserver-adapter'
> > > > gem 'mongrel', '1.2.0.pre2'
> > > > require 'dbi'
>
> > > > and then the database.yml
>
> > > > development:
> > > >  adapter: sqlserver
> > > >  mode: odbc
> > > >  database: NameOfMyDB
> > > >  host: localhost
> > > >  dsn: name_of_my_db
> > > >  autocommit: true
> > > >  username: something
> > > >  password: something
>
> > > > Notes about this conf
> > > > dsn is the same name as the dsn i created with the odbc data source
> > > > administrator tool this is a system DSN by the way i have also tried
> > > > with file DSN
>
> > > > Ok now on to running my app
>
> > > > i go to the directory wich is located as follows
>
> > > > D:/projects/railsdev/projectname/
>
> > > > so i go there and execute
> > > > bundle install  the result of this is
> > > > Error require: no such file to load --activerecord-sqlserver-adapter
>
> > > > if i change my require to a gem command everything is installed and
> > > > the server starts when i try to connect to the database i get another
> > > > error LoadError (no such file to load --odbc)
>
> > > > i have been loosing sleep over this please tell me what am i doing
> > > > wrong ?
>
> > > > --
> > > > You received this message because you are subscribed to the Google
> > Groups
> > > > "Ruby on Rails: Talk" group.
> > > > To post to this group, send email to [email protected]
> > .
> > > > To unsubscribe from this group, send email to
> > > > [email protected]<rubyonrails-talk%[email protected]>
> > <rubyonrails-talk%[email protected]<rubyonrails-talk%[email protected]>
>
> > > > .
> > > > For more options, visit this group at
> > > >http://groups.google.com/group/rubyonrails-talk?hl=en.
>
> > > take a look athttp://
> >www.10pines.com/content/deploy-ruby-rails-windows-2008-server-...
>
> > > greets
> > > --http://www.rodolinux.com.ar
>
> > > "I must not fear. Fear is the mind-killer. I will face my fear. I will
> > > permit it to pass over me and through me. And when it has gone past I
> > will
> > > turn the inner eye to see its path. Where the fear has gone there will be
> > > nothing. Only I will remain." - Bene Geserit's Fear Lethany - Dune
> > Trilogy -
> > > Frank Herbert
>
> > --
> > You received this message because you are subscribed to the Google Groups
> > "Ruby on Rails: Talk" group.
> > To post to this group, send email to [email protected].
> > To unsubscribe from this group, send email to
> > [email protected]<rubyonrails-talk%[email protected]>
> > .
> > For more options, visit this group at
> >http://groups.google.com/group/rubyonrails-talk?hl=en.
>
> --http://www.rodolinux.com.ar
>
> "I must not fear. Fear is the mind-killer. I will face my fear. I will
> permit it to pass over me and through me. And when it has gone past I will
> turn the inner eye to see its path. Where the fear has gone there will be
> nothing. Only I will remain." - Bene Geserit's Fear Lethany - Dune Trilogy -
> Frank Herbert

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