Some months ago I wrote this post: mod_rails - the tryout - the failure (for my situation) where I addressed my problems running a RoR application on a VPS using mod_rails.
In the meantime, according to their blog, the Phusion guys have addressed this issue:
In the last couple of days I took the chance to try it once again.
And today, I am a lucky guy. Having a stable webapplication running under mod_rails and Ruby Enterprise Edition.
It’s stable, phreaking fast and the memory footprint is great (even better than a mongrel system).
mod_rails really is ready for VPS enviroments!