version of mysql2 (0.3.2) doesn’t ship with the ActiveRecord adapter bundled anymore as it’s now part of Rails 3.1

The problem is because you are trying to install the latest version of mysql2 which is incompatible with rails 3.0.x version

SO, in your Gemfile change the line for mysql2 gem for this:

gem 'mysql2', '< 0.3'

then bundle command

and then when the new mysql2 gem file ( i think is 0.2.7 ) you will solve the problem.