Hopefully you may have solved the issue by now, if not, this is what you can 
do on your mac

# On Mac OS X:
#   sudo gem install mysql -- --with-mysql-dir=/usr/local/mysql
# On Mac OS X Leopard:
#   sudo env ARCHFLAGS="-arch i386" gem install mysql -- 
--with-mysql-config=/usr/local/mysql/bin/mysql_config
#       This sets the ARCHFLAGS environment variable to your native 
architecture

This is from the config/database.yml file

To uninstalling previous version of gem may not be required, but you can 
uninstall it using:
sudo gem uninstall mysql

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