Yes, I recommend using FactoryGirl for test data, even with engines.
Even if you use FactoryGirl, you do still need the dummy/test Rails app to have a database, otherwise the app won’t run. But you don’t need to include an sqlite database, in fact we generally recommend using Postgres for everything. Either way, you can
rake db:create either manually or as part of your automated test run, from within the test application and the database will be created if it doesn’t already exist.
From there, you can use your normal testing strategies within the app. FactoryGirl, relying as much as possible on build_stubbed, and also Rspec test doubles.
I hope that helps,