> HOMEDRIVE=P:
Your problem is probably there.
Run "set HOMEDRIVE=C:"
To verify that it has been set correctly run "echo %HOMEDRIVE%", which 
should now print out "C:". Try to install rails.

If that enables you to install gems you may want to edit the value 
permanently to avoid future problems. The homedrive key is located here:
HKEY_CURRENT_USER\Volatile Environment
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