As much as I'm a virtualisation junkie, if these Rails apps are all in the one "management domain" (ie you're responsible for keeping them all running, you're not hosting them for all manner of different developers who need to do their own thing now and then) I think that a single physical machine will work best. You'll probably be able to run all the sites on the one machine, if it's big beefy one and they're all really lightly loaded sites.
Going the VPS route involves a fairly sizeable overhead for running a single 100MB process each, as well as the disk space and hassle factor of having 50-100 extra copies of your OS running (and needing to be patched, managed, etc) -- even with solid automation (which I highly recommend regardless of your situation) it's going to be significantly more work to manage 100 machines than 1.
On the other hand, if you're hosting 50-100 random Rails apps, from different developers, who will be doing some of the system management themselves, then VPSes start to look a lot more useful.