You need to update Bundler: gem update bundler
RubyGems release 2.0 seems to be the trigger for the error:
RubyGems 2.0 includes several new features and many breaking changes. Some of these changes will cause existing software to break. . . . If you are using bundler be sure to install a 1.3.0.prerelease version or newer. Older versions of bundler will not work with RubyGems 2.0.
Here are the issue details.