The Error
$ brew
/usr/local/bin/brew: /usr/local/Library/brew.rb: /System/Library/Frameworks/Ruby.framework/Versions/1.8/usr/bin/ruby: bad interpreter: No such file or directory
/usr/local/bin/brew: line 21: /usr/local/Library/brew.rb: Undefined error: 0
$ brew doctor
/usr/local/bin/brew: /usr/local/Library/brew.rb: /System/Library/Frameworks/Ruby.framework/Versions/1.8/usr/bin/ruby: bad interpreter: No such file or directory
/usr/local/bin/brew: line 21: /usr/local/Library/brew.rb: Undefined error: 0
The Fix
Make homebrew think /System/Library/Frameworks/Ruby.framework/Versions/1.8
still exists until you successfully update:
cd /System/Library/Frameworks/Ruby.framework/Versions
sudo ln -s Current 1.8
brew update
sudo rm 1.8