Rails is slower (by many metrics) that a lot of web frameworks. But that doesn't mean it's not both great and cost-effective for many kinds of applications.
Here's a problem, though: if you're someone thinking about putting up a small-to-moderate-sized app on Rails, and you Google either "rails host, "rails hosting," "host rails," or "hosting rails," you will find RailsHosting.Org as search result #1 or #2.
RailsHosting has a section called "What is the right plan/stack for you?" and it basically paints such a terrifying picture that it might scare a lot of newcomers away. Is that hyperbole? You tell me: according to rh.org, a shared hosting plan with FastCGI is only good for 1,000 hits per day. For 2,000, you should be using a virtual dedicated server or an actual dedicated server along with Mongrel, Pound, and/or mod_proxy_balancer. 5,000+ hits/day? You need a dedicated server.
What? what?! whaaaat?!?!? If I'm a developer in an enterprise and I see numbers like this, it's game over, forget it.
Happily, these numbers aren't right. Based on my testing with actual shared hosts, it should be possible to run a site at least up to 10,000 hits/day (assuming that load ranges from 0.33x to 3x at different times of day) with a decently configured and run shared hosting plan -- even with a non-optimized app, little or no caching, etc. If the average host can't handle that, it's not a Rails problem, it's a shared hosting provider problem.
Now, if you want 10,000 hits/hour with lots of writes per page into the same database, and peak rates higher, than you're gonna need a different approach. Rails may still do it for you, but it won't be plug-and-play on a shared host.
In any case, server technology, virtual datacenter technology, and "point-click-buy" Mongrel and dedicated memory has improved since RailsHosting first put this data online.
So, notwithstanding the fact that my Samsung Blackjack (running .Net Compact 3.5) could probably serve ASP.Net faster than the average hosting provider can serve Rails, the first information kiosk on the Road to Rails should offer a less pessimistic and more realistic view!