The way to make this work (well for me anyway) is to put the bluecloth.rb file in your lib directory. Then require 'bluecloth' in your application.rb.
Finally, write a little helper method like (put it in whatever helper you need it for or application.rb):
Finally call it using markdown(text). You may have to write little helper methods for all the calls that your app makes into Bluecloth, but that should be doable.