Credit to Josh Silverman ind Steven Karger for this answer:
Raising the PermGen max solves the problem. It appears that doubling the PermGen max to 128 megabytes can support a 10 times larger test suite. From my testing, it looks like memory use by the java process starts to level out around 690mb (500 heap + 128 perigean + 50mb unknown) with that new PermGen max. You can increase your PermGen memory allocation by modifying your JRUBY_OPTS as shown above.
# in your .bashrc or .bash-profile, or other environment control:
export JRUBY_OPTS="--1.9 -J-XX:MaxPermSize=128m"