I am using the tinymce_rails gem. I would have thought it was using the newer version. Anyways, I found this link that describes in detail how the request/response should look: https://github.com/spohlenz/tinymce-rails. Effectively, the response for the older version of tinyMCE is this:
render :json => ({:id => nil, :result => ['badk', 'wirds'], :error => nil}).to_json
Also, it actually uses a second request to get the suggestions. And those should look like:
render :json => ({:id => nil, :result => ['bad', 'bed'], :error => nil}).to_json