A new notes regarding my local development environment after upgrading to Lion this morning.
1. mycrypt extension is no longer installed. To get this working I had to update/reinstall Developer Tools (from the App Store), install libmcrypt using macports, and then more or less follow the instructions here (changing 10.6 to 10.7 as necessary).
2. Path to ruby gems was missing/changed. Reinstalling the gems I needed fixed the issue.