Updating is simple, so long as you remember one little "gotcha".
$sudo gem update --system
$sudo gem update
Now here is the gotcha. Rails 2.0.X now has an new element, active resource, which is not upgrade by the standard upgrade path.
If you get the following error then its likely that you hav'nt updated rails properly.
/System/Library/Frameworks/Ruby.framework/Versions/1.8/usr/lib/ruby/1.8/rubygems.rb:379:in `report_activate_error': Could not find RubyGem activeresource (= 184.108.40.20653) (Gem::LoadError)
so the solution is to either...
$sudo gem install rails
$sudo gem install activeresource
You dont need to use --include-dependancies anymore, its the default on the current version of rubygems.
Note also that the standard rails distribution on Leopard does not include a mysql driver, i will produce a post on how to upgrade this later.