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I disagree with Charlie on one point:

This is a good friend's belief, but he's won me over: we don't believe Microsoft would ever willingly allow IronRuby to get to the point of running Rails, since that would directly compete with their ASP.NET server, software, and tool offerings. What would be the benefit to them of a free runtime running a free language implementation that runs a free web framework? Probably zero. And as Martin Fowler and others have blogged about NUnit, Microsoft hasn't exactly been lovey-dovey with OSS projects that impact (or are perceived to impact) their bottom line.

Microsoft cares about the Windows platform. If they can sell more Windows by having a fantastic IronRuby implementation that can run Rails, then that is a net win for them.