I have exactly the same problem on WinVista x64 (jdk 1.6.0_02).
And (I think) I've figured out what's the problem. The problem is termination of JRuby by hitting Control-C and then answering Yes to "Terminate batch job (Y/N)?" question.
When I do that, jruby adds more and more entries to CLASSPATH entry, so after a while the command line entry gets too long, and hence the output error, which is very confusing at first.
(The junk after the main error entry doesn't help either...) 
The workaround so far? To answer NO after you hit Control-C! 
This is rather visible issue and I hope it will be fixed.
Here's some output on my system when I invoke "echo %CLASSPATH%":
1. first time, no JRuby yet:
.;C:\Program Files (x86)\QuickTime\QTSystem\QTJava.zip
2. After first Control-C:
D:\work\jruby\lib\asm-3.0.jar;D:\work\jruby\lib\asm-commons-3.0.jar;D:\work\jruby\lib\asm-util-3.0.jar;D:\work
\jruby\lib\backport-util-concurrent.jar;D:\work\jruby\lib\bsf.jar;D:\work\jruby\lib\emma.jar;D:\work\jruby\lib
\emma_ant.jar;D:\work\jruby\lib\jarjar-0.7.jar;D:\work\jruby\lib\jline-0.9.91.jar;D:\work\jruby\lib\jna.jar;D:
\work\jruby\lib\jruby.jar;D:\work\jruby\lib\junit.jar;D:\work\jruby\lib\retroweaver-2.0.jar;D:\work\jruby\lib\
retroweaver-rt-2.0.jar;.;C:\Program Files (x86)\QuickTime\QTSystem\QTJava.zip
3. After second Control-C:
D:\work\jruby\lib\asm-3.0.jar;D:\work\jruby\lib\asm-commons-3.0.jar;D:\work\jruby\lib\asm-util-3.0.jar;D:\work
\jruby\lib\backport-util-concurrent.jar;D:\work\jruby\lib\bsf.jar;D:\work\jruby\lib\emma.jar;D:\work\jruby\lib
\emma_ant.jar;D:\work\jruby\lib\jarjar-0.7.jar;D:\work\jruby\lib\jline-0.9.91.jar;D:\work\jruby\lib\jna.jar;D:
\work\jruby\lib\jruby.jar;D:\work\jruby\lib\junit.jar;D:\work\jruby\lib\retroweaver-2.0.jar;D:\work\jruby\lib\
retroweaver-rt-2.0.jar;D:\work\jruby\lib\asm-3.0.jar;D:\work\jruby\lib\asm-commons-3.0.jar;D:\work\jruby\lib\a
sm-util-3.0.jar;D:\work\jruby\lib\backport-util-concurrent.jar;D:\work\jruby\lib\bsf.jar;D:\work\jruby\lib\emm
a.jar;D:\work\jruby\lib\emma_ant.jar;D:\work\jruby\lib\jarjar-0.7.jar;D:\work\jruby\lib\jline-0.9.91.jar;D:\wo
rk\jruby\lib\jna.jar;D:\work\jruby\lib\jruby.jar;D:\work\jruby\lib\junit.jar;D:\work\jruby\lib\retroweaver-2.0
.jar;D:\work\jruby\lib\retroweaver-rt-2.0.jar;D:\work\jruby\lib\asm-3.0.jar;D:\work\jruby\lib\asm-commons-3.0.
jar;D:\work\jruby\lib\asm-util-3.0.jar;D:\work\jruby\lib\backport-util-concurrent.jar;D:\work\jruby\lib\bsf.ja
r;D:\work\jruby\lib\emma.jar;D:\work\jruby\lib\emma_ant.jar;D:\work\jruby\lib\jarjar-0.7.jar;D:\work\jruby\lib
\jline-0.9.91.jar;D:\work\jruby\lib\jna.jar;D:\work\jruby\lib\jruby.jar;D:\work\jruby\lib\junit.jar;D:\work\jr
uby\lib\retroweaver-2.0.jar;D:\work\jruby\lib\retroweaver-rt-2.0.jar;.;C:\Program Files (x86)\QuickTime\QTSyst
em\QTJava.zip
I have exactly the same problem on WinVista x64 (jdk 1.6.0_02).
And (I think) I've figured out what's the problem. The problem is termination of JRuby by hitting Control-C and then answering Yes to "Terminate batch job (Y/N)?" question.
When I do that, jruby adds more and more entries to CLASSPATH entry, so after a while the command line entry gets too long, and hence the output error, which is very confusing at first.
(The junk after the main error entry doesn't help either...)
The workaround so far? To answer NO after you hit Control-C!
This is rather visible issue and I hope it will be fixed.
Here's some output on my system when I invoke "echo %CLASSPATH%":
1. first time, no JRuby yet:
.;C:\Program Files (x86)\QuickTime\QTSystem\QTJava.zip
2. After first Control-C:
D:\work\jruby\lib\asm-3.0.jar;D:\work\jruby\lib\asm-commons-3.0.jar;D:\work\jruby\lib\asm-util-3.0.jar;D:\work
\jruby\lib\backport-util-concurrent.jar;D:\work\jruby\lib\bsf.jar;D:\work\jruby\lib\emma.jar;D:\work\jruby\lib
\emma_ant.jar;D:\work\jruby\lib\jarjar-0.7.jar;D:\work\jruby\lib\jline-0.9.91.jar;D:\work\jruby\lib\jna.jar;D:
\work\jruby\lib\jruby.jar;D:\work\jruby\lib\junit.jar;D:\work\jruby\lib\retroweaver-2.0.jar;D:\work\jruby\lib\
retroweaver-rt-2.0.jar;.;C:\Program Files (x86)\QuickTime\QTSystem\QTJava.zip
3. After second Control-C:
D:\work\jruby\lib\asm-3.0.jar;D:\work\jruby\lib\asm-commons-3.0.jar;D:\work\jruby\lib\asm-util-3.0.jar;D:\work
\jruby\lib\backport-util-concurrent.jar;D:\work\jruby\lib\bsf.jar;D:\work\jruby\lib\emma.jar;D:\work\jruby\lib
\emma_ant.jar;D:\work\jruby\lib\jarjar-0.7.jar;D:\work\jruby\lib\jline-0.9.91.jar;D:\work\jruby\lib\jna.jar;D:
\work\jruby\lib\jruby.jar;D:\work\jruby\lib\junit.jar;D:\work\jruby\lib\retroweaver-2.0.jar;D:\work\jruby\lib\
retroweaver-rt-2.0.jar;D:\work\jruby\lib\asm-3.0.jar;D:\work\jruby\lib\asm-commons-3.0.jar;D:\work\jruby\lib\a
sm-util-3.0.jar;D:\work\jruby\lib\backport-util-concurrent.jar;D:\work\jruby\lib\bsf.jar;D:\work\jruby\lib\emm
a.jar;D:\work\jruby\lib\emma_ant.jar;D:\work\jruby\lib\jarjar-0.7.jar;D:\work\jruby\lib\jline-0.9.91.jar;D:\wo
rk\jruby\lib\jna.jar;D:\work\jruby\lib\jruby.jar;D:\work\jruby\lib\junit.jar;D:\work\jruby\lib\retroweaver-2.0
.jar;D:\work\jruby\lib\retroweaver-rt-2.0.jar;D:\work\jruby\lib\asm-3.0.jar;D:\work\jruby\lib\asm-commons-3.0.
jar;D:\work\jruby\lib\asm-util-3.0.jar;D:\work\jruby\lib\backport-util-concurrent.jar;D:\work\jruby\lib\bsf.ja
r;D:\work\jruby\lib\emma.jar;D:\work\jruby\lib\emma_ant.jar;D:\work\jruby\lib\jarjar-0.7.jar;D:\work\jruby\lib
\jline-0.9.91.jar;D:\work\jruby\lib\jna.jar;D:\work\jruby\lib\jruby.jar;D:\work\jruby\lib\junit.jar;D:\work\jr
uby\lib\retroweaver-2.0.jar;D:\work\jruby\lib\retroweaver-rt-2.0.jar;.;C:\Program Files (x86)\QuickTime\QTSyst
em\QTJava.zip