This issue was annoying me to the extent that I had to install Win7, as a virtual guest, using Linux KVM virtualization.
After some fiddling I have it working as expected, as I'm used to on Linux, without those hacks I advised HappySeagull to use.
There is no need to copy files to special places or to edit the Registry.
Tore: If you edit the path in Advanced Sestems Settings -> System Properties -> Advanced -> Environmental Variables, I think that the system handles spaces correctly.
This is what I found:
1 When installing ruby make sure to tick the two boxes about adding ruby to the path and adding .rb and .rbw to "pathtext". This is in the dialog just after adapting the license
. If you have not done his, reinstall.
2 You have to restart windows after this. Nothing prompted me to do so, but it is necessary for the environmental variables to work.
3 After installing Libtiff and Imagemagic, restart, for the same reason.
4 Make sure your path includes the path to Libtiff and Imagemagic.
A quick check is to write "path" in a dos window. If it needs editing, do so in System Properties as above, then restart.
5 Go to Env variables as described above. There should be an panel applying to you as a user, and one for system variables.
In system variables find "PATHTEXT". Edit and add this at the and of the textstring : ";.rb;.rbw"
This was the key to get ruby to read the command line arguments.
6 Restart again, for he changed ENV variables to work.
Once again this was on win7.
I hope that this will work for you guys.