Either way, when you try to run...
sudo gem update --system
It goes...
/usr/bin/gem:23: uninitialized constant Gem::GemRunner (NameError)
Which is really useful and does exactly what you want it to.. not. The fix is to go edit the gem file...
/usr/bin/gem
In there, hunt for the line...
require 'rubygems'
...and just after, put this...
require 'rubygems/gem_runner'
Problem solved!