The Permanent Generation was named that way since objects in there were never collected. For most applications this isn't really a problem. Running JRuby+Rails just allocated a lot of classes in this generation, so the default size was too small. But still, the permanent generation was quite small compared to the heap size.

I wouldn't really call the GC bad because of this, IMHO they were already quite good back then. And in Java 8 the permanent generation was replaced with the Metaspace, objects in there can be free'd and the Metaspace can be expanded at runtime so it's less likely to get these OOM errors for the permanent generation.