#! /usr/local/bin/perl
use strict;
use warnings;

#  $i: italic
#  $s: shadowed
#  $w: wide spacing
#  $n: narrow spacing
#  $m: normal setting
#  $g: default color
#  $t: changes the text to capitals
#  $z: reset all
#  $$: to write a "$"

my %classes = (
    i   => 'italics',
    s   => 'shadowed',
    w   => 'wide',
    n   => 'narrow',
    m   => 'normal',
);

my %testcases = (
    '$iMy$z$w$f00Nickname' => '<span class="italics">My</span><span cl
+ass="wide"><font color="ff0000">Nickname</font></span>',
    '$s$5aaD$ddfia$5aaD$ddfe$5cc§' => '<span class="shadowed"><font co
+lor="55aaaa">D<font color="ddddff">ia<font color="55aaaa">D<font colo
+r="ddddff">e<font color="55cccc">§</font></font></font></font></font>
+</span>',
    '$iT$sh$wi$ns is $m$444silly$z $tsmall stuff$z and BIG STUFF' => '
+<span class="italics">T<span class="shadowed">h<span class="wide">i<s
+pan class="narrow">s is <span class="normal"><font color="444444">sil
+ly</font></span></span></span></span></span> SMALL STUFF and BIG STUF
+F',
    '$wWIDE$nNARROW$mnormal' => '<span class="wide">WIDE<span class="n
+arrow">NARROW<span class="normal">normal</span></span></span>',
    '$ta$$zas$zdf' => 'A$ZASdf',
    '$tasdf' => 'ASDF',

);

foreach ( keys %testcases ) {
    my $string = $_;
    my @tags;
    while ( $string =~ m/(\$[iswnmgtz\$]|\$[0-9a-f]{3,3})/ig ) {
        my $pos = pos($string);
        my $taglen = 2;
        my $replacement = "";

        my $c = lc(substr($1,1,1));
        if(my $class = $classes{$c}) {
            $replacement = "<span class=\"$class\">";
            unshift(@tags, '</span>');
        } elsif($c eq 'g') {
            $replacement = '<font color="#000000">';
            unshift(@tags, '</font>');
        } elsif($c eq 't') {
            my $length = length($string) - $pos;
            while ( $string =~ m/(\$[iswnmgtz\$]|\$[0-9a-f]{3,3})/ig )
+ {
                if(lc($1) eq '$z') {
                    $length = pos($string) - $pos - 2;
                    last;
                }
            }
            substr($string, $pos, $length, uc( substr($string, $pos, $
+length) ) );
        } elsif($c eq 'z') {
            local $" = "";
            $replacement = "@tags";
            @tags = ();
        } elsif($c eq '$') {
            $replacement = '$';
        } else {
            $taglen = 4;
            my ($x, $r, $g, $b) = split(//,$1);
            $replacement = "<font color=\"$r$r$g$g$b$b\">";
            unshift(@tags, '</font>');
        }

        substr($string, $pos - $taglen, $taglen, $replacement);
        pos($string) = $pos - $taglen + length($replacement);
    }
    { local $" = ""; $string .= "@tags"; }

    if($string eq $testcases{$_}) {
        print "Ok '$_' =>\n '$string'\n";
    } else {
        print "Not Ok '$_' =>\n '$string'  expecting:\n '$testcases{$_
+}'\n";
    }
}
[download]

Following is the original buggy version.

#! /usr/local/bin/perl
use strict;
use warnings;

#  $i: italic
#  $s: shadowed
#  $w: wide spacing
#  $n: narrow spacing
#  $m: normal setting
#  $g: default color
#  $t: changes the text to capitals
#  $z: reset all
#  $$: to write a "$"

my %classes = (
    i   => 'italics',
    s   => 'shadowed',
    w   => 'wide',
    n   => 'narrow',
    m   => 'normal',
);

foreach (
    '$iMy$z$w$f00Nickname',
    '$s$5aaD$ddfia$5aaD$ddfe$5cc§',
    '$iT$sh$wi$ns is $m$444silly$z $tsmall stuff$z and BIG STUFF',
    '$wWIDE$nNARROW$mnormal',
) {
    my $string = $_;
    my @tags;
    while ( $string =~ m/(\$[iswnmgtz\$]|\$[0-9a-f]{3,3})/ig ) {
        my $c = lc(substr($1,1,1));
        if(my $class = $classes{$c}) {
            substr($string,pos($string) - 2, 2, "<span class=\"$class\
+">");
            push(@tags, '</span>');
        } elsif($c eq 'g') {
            substr($string,pos($string) - 2, 2, '<font color="#000000"
+>');
            push(@tags, '</font>');
        } elsif($c eq 't') {
            my $end = index($string, '$z', pos($string));
            $end = length($string) if($end == -1);
            substr($string,pos($string)-2 ,$end - pos($string) +2, uc(
+substr($string,pos($string), $end - pos($string))));
        } elsif($c eq 'z') {
            { local $" = ""; substr($string,pos($string) - 2, 2, "@tag
+s"); }
            @tags = ();
        } elsif($c eq '$') {
            substr($string,pos($string) - 2, 2, '$');
        } else {
            my ($x, $r, $g, $b) = split(//,$1);
            substr($string,pos($string) - 4, 4, "<font color=\"$r$r$g$
+g$b$b\">");
            push(@tags, '</font>');
        }
    }
    { local $" = ""; $string .= "@tags"; }

    print "$string\n";
}
[download]

CSS something like the following may be a start:

<style type="text/css">
<!--
SPAN.italics    { font-style: italic; }
SPAN.shadowed   {
    background-color: #666;
    color: inherit;
}
SPAN.wide       { font-stretch: wider; }
SPAN.narrow     { font-stretch: narrower; }
SPAN.normal     { font-stretch: normal; }
-->
</style>
[download]

It creates results like the following:

<span class="italics">My</span><span class="wide"><font color="ff0000"
+>Nickname</span></font>
<span class="shadowed"><font color="55aaaa">D<font color="ddddff">ia<f
+ont color="55aaaa">D<font color="ddddff">e<font color="55cccc">§</spa
+n></font></font></font></font></font>
<span class="italics">T<span class="shadowed">h<span class="wide">i<sp
+an class="narrow">s is <span class="normal"><font color="444444">sill
+y</span></span></span></span></span></font> SMALL STUFF and BIG STUFF
<span class="wide">WIDE<span class="narrow">NARROW<span class="normal"
+>normal</span></span></span>
[download]