If you install ruby on windows by uncompressing its zip file, "gem update --system" fails in intact because dynamic link library of zlib doesn't exist on the load path. So you need to download zlib compiled DLL from zlib home Site.
After finishing download, uncompress the zip file of DLL, and deploy ruby's bin directory. But, there's one important step that oftenly eliminated. It's renaming from zlib1.dll to zlib.dll. Then "gem update --system" succeeds.