Multiple rack apps on nginx + passenger, one as root, the other not...config help

Question

So I've got two apps I want to run on a server. One app I would like to be the "default" app--that is, all URLs should be sent this app by default, except for a certain path, lets call it /foo:

http://mydomain.com/        -> app1
http://mydomain.com/apples  -> app1
http://mydomain.com/foo     -> app2

My two rack apps are installed like so:

/var
  /www
    /apps
      /app1
        app.rb
        config.ru
        /public
      /app2
        app.rb
        config.ru
        /public
    app1 -> apps/app1/public
    app2 -> apps/app2/public

(app1 and app2 are symlinks to their respective apps' public directories). This is the Passenger setup for sub URIs described here: http://www.modrails.com/documentation/Users%20guide%20Nginx.html#deploying_rack_to_sub_uri

With the following config I've got /foo going to app2:

server {
  listen 80;
  server_name mydomain.com;
  root /var/www;
  passenger_enabled on;
  passenger_base_uri /app1;
  passenger_base_uri /app2;

  location /foo {              
    rewrite ^.*$ /app2 last;
  }
}

Now, how do I get app1 to pick up everything else? I've tried the following (placed after the location /foo directive), but I get a 500 with an infinite internal redirect:

location / {
  rewrite ^(.*)$ /app1$1 last;
}

I hoped that the last directive would prevent that infinite redirect, but I guess not. My /foo rewrite still works. And I can still go to http://mydomain.com/app1.

Any ideas? Thanks!