I wrote a rails plugin called FlexImage. The best example of dynamic image creation that uses it is here: http://thewinespies.com/dossier.jpg
Which is a dynamically created image base don the data on the homepage here: http://thewinespies.com/
Overlay, scaling, cropping, borders, shadows, text, and a few other things are pretty easy with. Granted I'm a bit biased but I think it rocks. It's mostly designed to be used with an uploaded image as a base but it can be configured to work by transforming a virtual image with model data instead pretty easily.
Check it out.
Oh, and it depends on rMagick, which depends on ImageMagick. But the plugin uses the right tricks to clean up memory after itself. I've used it production without issues.