You didn't say whether you're using Windows voluntarily. However, this line suggests to me that maybe that's the case:
"If you think that I've completely lost my mind, then feel free to tell me too"
If you have any choice in the matter, I strongly recommend using a Unix-based system instead of Windows. If you have to go through inconvenience, spend money, or jump through hoops to avoid doing Ruby/Rails development on Windows, it will be worth it.
I've had to cope with Ruby and Rails on Windows a lot recently due to legacy systems and other developers' preferences. Rails development on a Unix-based system is much more efficient. The difference is not subtle.
That said, as others have mentioned, installing mysysgit even if you aren't using Git is helpful because it comes with Git Bash which gives you a usable bash command line.
As for text editors, I like Notepad++.
NetBeans is a really nice IDE for Rails development. Decent syntax highlighting, code completion, error highlighting. Handy keyboard shortcuts for navigation. It's pretty good.