The 1.8.7 EE would be a safer bet right now. The main problem with Ruby apps is the distinct inability to share memory (the copy-on-write issue) and fixing that is the main aim of EE.
I manage 8 different sites, all running versions of our product running on a mix of Rails, Merb, Rack and Thin on all running on plain old Ruby 1.8.7. For a small Rails application, 256Mb would be ok.
You can see from below that our application is comprised of 6 processes; Rails (2) and Merb (4). The Rails processes (mongrel_rails) are using 104Mb of actual memory each. Our app is reasonably complex with responses of the order of 0.5s so we are looking at being able to handle around 4/5 concurrent users from the 2 Rails processes. Take a look at the shockingly small amount of shared memory to see why EE makes so much sense. I'd expect a much higher shared section with EE.
As they say 'your experience may differ' but there's nothing stopping you from even trying plain old Ruby/Rails and only moving to EE if you need to.
top - 08:57:48 up 128 days, 11:57, 1 user, load average: 0.07, 0.09, 0.09
Tasks: 76 total, 1 running, 75 sleeping, 0 stopped, 0 zombie
Cpu(s): 2.4%us, 0.1%sy, 0.0%ni, 96.2%id, 0.0%wa, 0.0%hi, 0.0%si, 1.3%st
Mem: 1048796k total, 745840k used, 302956k free, 5192k buffers
Swap: 2097144k total, 634636k used, 1462508k free, 124816k cached
PID USER PR NI VIRT RES SHR S %CPU %MEM TIME+ COMMAND
25875 root 20 0 271m 104m 4616 S 0 10.2 141:07.07 mongrel_rails
25872 root 20 0 263m 102m 4648 S 0 10.0 142:11.86 mongrel_rails
21089 root 20 0 192m 84m 2436 S 0 8.3 2:52.03 merb
21088 root 20 0 173m 80m 2436 S 0 7.9 2:51.73 merb
21090 root 20 0 179m 74m 2436 S 0 7.3 2:42.83 merb
21086 root 20 0 113m 34m 1660 S 11 3.4 3752:37 merb
4874 clavis 20 0 122m 31m 3804 S 0 3.1 127:52.87 profile_report
3662 mysql 20 0 368m 22m 3280 S 0 2.2 464:01.81 mysqld