After upgrading to Lion, I tried installing the pg gem and kept getting the following error, even though I had installed the latest version of XCode (4.3):

checking for libpq-fe.h... RuntimeError: The complier failed to generate an executable file. You have to install development tools first.

Turns out, you have to install the command line tools separately.

Under XCode –> Preferences, click Downloads, then Components. Select Command Line Tools and click Install.