This is another classic case of "the solution is so obviously you would slap yourself afterwardss".
1) First of all, the distro is the not the problem.
2) You created a new user just for LiteSpeed.
3) Reinstalled LiteSpeed and entered the new user as the desired user, and user group when asked by installer.
4) Executed "chown -R lsws:lsws myrubyappfolder".
5) Start litespeed as root.
Check to see if you did all above and let me know what errors are logged in log/ folder if any. Also check log folder under ruby app folder.