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RailsPlayground, though many of my friends swear by SliceHost.

I used this resource when choosing a hosting provider:

http://www.railshosting.org/

question: (insert question about hosting here)

answer: buy a VPS. the most popular one seems to be slicehost.

I think that answer is generally a good one. But when you're simply doing development and haven't launched yet, a hosted developer account can take a lot of headache out of hosting.

I don't want to be the UNIX admin for my VPS when I'm focused on development. So a REALLY important feature of any hosting provider for me is the ability to start on a $5 shared server account, and eventually ramp it to a 1024MB VPS, painlessly.

i have a small slice on which i run pretty much everything i have until it needs its own server. turns out to be cheaper than buying a bunch of tiny hosting accounts for small, stupid projects (i have project ADD sometimes)

just my $0.02, though.

Joyent.

Ask YC: Ruby Hosting