I am having a similar FCGI problem right now.
I run script/console or script/server and my application starts properly. If I switch the .htaccess to use dispatch.cgi, it works fine as well.
I've deleted all my ruby session files, I've killed all the existing dispatch.cgi processes, and this is the contents of my dispatch.fcgi file:
|require File.dirname(FILE) + "/../config/environment"
When I run it from the shell I get:
Status: 500 Internal Server Error
And of course when I run from the browser I also get the same Rails failed to start properly error..
I've also tried adding the frao_handler extension to the dispatch.fcgi file, as mentioned in the Wiki, and this does nothing either.
The permissions on the file are 755 as recommended.
Anyone have any suggestions? My application was working properly yesterday. All I did was update my codebase from a local copy (replaced files in the app folder and in the public subfolders only - no ruby-specific files or system libraries).