This is probably a better solution than my first, but you can be the judge 
of that.

class Wordsearch
  DIRECTIONS = [[1,0],[-1,0],[0,1],[0,-1],[1,1],[1,-1],[-1,-1],[-1,1]]
  def initialize(wordsearch,words)
    @words = words
    @rows = wordsearch.split(/\s+/).delete_if { |row| row == "" }
    @points = {}
    @letterPositions = []
    @rows.each_with_index do |row,y|
      row.split(//).each_with_index do |letter,x|
        @points[[x,y]] = letter
      end
    end
  end
  def solve
    @words.each { |word| search(word) }
  end
  def printWordsearch
    @rows.each_with_index do |row,y|
      row.split(//).each_with_index do |letter,x|
        print @letterPositions.include?([x,y]) ? letter : "+"
      end
      puts
    end
  end

  private

  def search(word)
    points(word[0].chr).each do |point|
      DIRECTIONS.each do |direction|
        possiblePoints = [point]
        point2 = point
        for i in (1...word.length)
          if checkNext(point2,word[i].chr,direction) or word[i].chr == "*" 
or @points[(point2.to_p + direction.to_p).to_a] == "*" # wildcard character 
= *
            possiblePoints.push((point2 = (point2.to_p + 
direction.to_p).to_a))
          end
        end
        @letterPositions += possiblePoints if possiblePoints.length == 
word.length
      end
    end
  end
  def points(aLetter)
    points = []
    @points.each do |point,letter|
      points.push(point) if aLetter == letter
    end
    points
  end
  def checkNext(point,letter,direction)
    @points[(point.to_p + direction.to_p).to_a] == letter
  end
end

class Array
  def to_p
    Point.new(self[0].to_i,self[1].to_i)
  end
end

class Point
  attr_reader :x,:y
  def initialize(x,y)
    @x,@y = x,y
  end
  def +(point)
    Point.new(@x + point.x,@y + point.y)
  end
  def to_a
    [@x,@y]
  end
end

wordsearch = ""
loop do
  row = gets.chomp
  wordsearch += row + "\n"
  break if row == ""
end
words = gets.chomp.split(/\s*,\s*/).map { |word| word.upcase.gsub(/\s/,"") }
w = Wordsearch.new(wordsearch.upcase,words)

w.solve
w.printWordsearch

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