what do you want to do? or in other words, what do you want to ask? do you want to know how to create an application with rails? or, as the title of your post suggests, do you want to know how to manipulate xml files with ruby? would you please do us a favor, tell your requirement clearly?
well...at least you can generate xml with REXML, just like nonocast said. however rails provided another powerful approach building xml documents: rxml templates. please refer to section 17.2 of the book "Agile Web Development with Rails" for detailed discussion.