Okay I got it working now:

wordlist.rb:
------------
Code_words = {
  'Milkshake' => 'See what you mean to me, sweet cakes and milkshakes',
  'Strawberry' => 'People moving all the time, inside a perfectly 
straight line, don\'t you wanna  curve away?'
}

code.rb
-------
require '/home/arslan/Work/01-June/ruby/wordlist'

# Get the evil idea and swap in code words
print "Enter your new idea: "
idea = gets
  Code_words.each do |real, code|
    idea.gsub!( real, code )
  end

# Save the jibberish to a new file
print "File encoded, Please enter a name for this idea: "
idea_name = gets.strip
  File::open( "idea-" + idea_name + ".txt", "w" ) do |f|
  f << idea
end

-------------------------------------

1: There should be no space between File::open and (
2: Full file path is needed in the "require" line
3: code_words needs to be changed to Code_words 
(http://www.ruby-forum.com/topic/1873204)

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