Why do you need all those variables? and did you check if it passes -w and strict?

here's one that does:

#!/usr/bin/perl -w
use strict;

print 'What string would you like to twiddle? ';
chomp(my $twiddle = <STDIN>);

my $string;
my @t = split(//, $twiddle);

for (0..$#t) {
    $string .= shift(@t);
    print $string, "\n"; # up
}

while ($string) { 
    chop($string); 
    print $string, "\n"; # and down
}
[download]