William's code is amazing!
A one line solution, inspired by his ideas:
"This {is|was} a {good|nice} day".split(/\{(.*?)\}/).map! {|x| 
x.split("|")}.inject([[]]){|old,lst| lst.inject([]){|new,e| new + 
old.map{|c| c + [ e ] }}}.each {|x| p x.join}

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