I got the sessions to work better buy uninstalling the ruby-lsapi gem and then installing rather than just upgrading.
I still think there is a problem with the RAILS_ENV setting, i am unable to print the value of it from within my website using:
<%= ENV['RAILS_ENV'] %>
but i can if i use:
<%= RAILS_ENV %>
with FCGI i can use either one, here is what i get for LSAPI (i removed the cookies) when i print ENV:
SERVER_NAME: stage.domain.com
HTTP_X_PROTOTYPE_VERSION: 1.5.0_rc0
HTTP_USER_AGENT: Mozilla/5.0 (X11; U; Linux i686; en-US; rv:1.8.0.3) Gecko/20060523 Ubuntu/dapper Firefox/1.5.0.3
CONTENT_LENGTH: "0"
HTTP_ACCEPT_ENCODING: gzip,deflate 
SERVER_PROTOCOL: HTTP/1.1 
SCRIPT_NAME: /dispatch.lsapi 
SERVER_ADDR: xx.xx.xx.xx 
HTTP_CACHE_CONTROL: no-cache 
HTTP_HOST: stage.domain.com 
HTTP_ACCEPT_LANGUAGE: en-us,en;q=0.5 
SERVER_SOFTWARE: LiteSpeed 
REMOTE_ADDR: xx.xx.xx.xx 
CONTENT_TYPE: HTTP_ACCEPT_CHARSET: ISO-8859-1,utf-8;q=0.7,*;q=0.7 REQUEST_URI: /someurl 
DOCUMENT_ROOT: /docroot
HTTP_KEEPALIVE: "300" 
RAW_POST_DATA: "" 
SERVER_PORT: "80" 
QUERY_STRING: "" 
REMOTE_PORT: "60557" 
HTTP_PRAGMA: no-cache 
HTTP_ACCEPT: text/javascript, text/html, application/xml, text/xml, */* 
PATH: /bin:/usr/bin 
REQUEST_METHOD: POST 
HTTP_X_REQUESTED_WITH: XMLHttpRequest 
HTTP_CONNECTION: close
With FCGI:
--- !ruby/object {}
So something is going on here...