There is a problem during Rally App SDK 2.0p environment setup on Windows 7 (64-bit). I have installed Ruby 1.8.7-p358 from rubyinstaller.org and managed to install rake Rub
Try this gem install libv8 -v '3.16.14.3' -- --with-system-v8
Reference: Error installing libv8: ERROR: Failed to build gem native extension