First code example in section 7.2.4 of Rails Tutorial

gistfile1.txt

$ rails console --sandbox
>> User.create(:name => "Michael Hartl", :email => "mhartl@example.com",
?>             :password => "foobar", :password_confirmation => "foobar")
>> user = User.find_by_email("mhartl@example.com")
>> user.has_password?("foobar")
=> true

My attempt at repeating this exercise

$ rails console --sandbox
ruby-1.9.2-rc1 > User.create( :name => "Prakash Murthy", :email => "prakblr@yahoo.com", :password => "abcdefgh", :password_confirmation => "abcdefgh" )
 => #<User id: nil, name: "Prakash Murthy", email: "prakblr@yahoo.com", created_at: nil, updated_at: nil, encrypted_password: nil, salt: nil>

ruby-1.9.2-rc1 > user = User.find_by_email("prakblr@yahoo.com")
 => #<User id: 1, name: "Prakash Murthy", email: "prakblr@yahoo.com", created_at: "2010-12-12 01:42:44", updated_at: "2010-12-12 01:42:44", encrypted_password: nil, salt: nil> 

ruby-1.9.2-rc1 > user.has_password?('abcdefgh')
 => false 

================================================
Couldn't figure out why the encrypted_password and salt were nil; reviewed the previous steps in the chapter figure out this issue, assuming I must have missed some step. 

Finally realized that the record User record being displayed was already in the database before I opened the rails console; I must have saved it in a previous exercise. Using create! instead of create throws the error immediately. 

================================================
$ rails c --sandbox
Loading development environment in sandbox (Rails 3.0.0)
Any modifications you make will be rolled back on exit
ruby-1.9.2-rc1 > User.all
 => [#<User id: 1, name: "Prakash Murthy", email: "prakblr@yahoo.com", created_at: "2010-12-12 01:42:44", updated_at: "2010-12-12 01:42:44", encrypted_password: nil, salt: nil>] 

ruby-1.9.2-rc1 > User.create!( :name => "Prakash Murthy", :email => "prakblr@yahoo.com", :password => "abcdefgh", :password_confirmation => "abcdefgh" )
ActiveRecord::RecordInvalid: Validation failed: Email has already been taken

I had undergone the same problem..
just try with some other name and email address it worked for me.. since the very same record is already in the db changing the given data or removing the given record from the db will work.