For the time being I've rolled back the gem changes and applied the suggested hotfix (removing XML from the default params parsers). I've been trying for a solid hour to get a deploy out with the updated rails version, and it's just not having any of it.
Edit: finally got it out. This deploy model is completely screwed, though. It just shouldn't be normal to have a service like rubygems.org in the daily deploy loop. This is absolutely not a knock on the fantastic volunteers that run it - they simply shouldn't be dealing with this sort of load spike.