I recently installed Rails 3 beta release but I needed to create new app with the 2.3.5. version. I was searching for a way to do that and I found this
Unfortunately this will produce an error similar to this
To fix this first run
and you will get a path to your rails executable, in my case this is /usr/local/bin/rails.
Then copy rails to rails3.
Then open this file in your text editor (TextMate in my case).
and replace two last lines so that your file now looks like
Thats it, now you can create your app with specific Rails version with