I have the same error even locally on Rails 3.0.9:

/Users/sekrett/.rvm/rubies/ruby-1.9.2-p290/lib/ruby/site_ruby/1.9.1/rubygems/specification.rb:540:in
 
`normalize_yaml_input': invalid byte sequence in US-ASCII 
(ArgumentError)

mac os x 10.5.8
ruby 1.9.2-p290
bundler 1.0.17
rubygems 1.8.7

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