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I like that it installs into ~/.gem, I just wish it would stop warning me about it.
Setting a $GEM_HOME doesn’t seem like a solution, since I use both gem18 and gem19 (I’ve got to support both), and I like that the gems for each install into ~/.gem/ruby/<version>, and when I set a $GEM_HOME gems for each get installed in the same directory.
Have you considered RVM? Especially if you play with multiple ruby versions. For me the biggest bonus is project specific gemsets with automatic switching.