Snow Leopard Server (and at least Leopard Server) both have MySQL installed already. But its not a complete enough install to build the Ruby Mysql Gem. It seems that the Snow Leopard Server Mysql does not include all the client stuff that is needed by the mysql gem.
The Apple Support article: Mac OS X Server 10.5.6 or later: MySQL libraries available for download is the main tip, but you’ll need to get the actual latest version, not necessarily the version specified in the article. I downloaded MySQL-49 Binary which is actually mysql Ver 14.12 Distrib 5.0.82, for apple-darwin10.0.
This is a bit scary as the installation process is to untar the binary right on top of the actual /usr filesystem. I don’t know for sure if its totally right… and 64 bit and there’s no going back.
The prcoess is after you download the binary run the following command as root/sudo (and remember the -C / says to untar it starting at the root of the filesystem, so its going to overwrite things in /usr):
tar -xzvf MySQL-49.binaries.tar.gz -C /