Kata "Game of Life"

This is a small task, used by some companies as a technical assignment for candidates.

Approach

I tried to come up with a simple and elegant solution. It's not a general framework, nor a library for this problem domain.
There is no OOP, and it's not very readable either. Consider this code just as a small script, not meant to be modified or integrated into something.

If you feel more comfortable in the object-oriented paradigm, welcome to Toy Robot Puzzle (though it's a totally different puzzle).

Problem Description

This Kata is about calculating the next generation of Conway's game of life, given any starting position. See http://en.wikipedia.org/wiki/Conway%27s_Game_of_Life for background.

You start with a two dimensional grid of cells, where each cell is either alive or dead. In this version of the problem, the grid is finite, and no life can exist off the edges. When calcuating the next generation of the grid, follow these rules:

1. Any live cell with fewer than two live neighbours dies, as if caused by underpopulation.
2. Any live cell with more than three live neighbours dies, as if by overcrowding.
3. Any live cell with two or three live neighbours lives on to the next generation.
4. Any dead cell with exactly three live neighbours becomes a live cell.

You should write a program that can accept an arbitrary grid of cells, and will output a similar grid showing the next generation.

Clues

The input starting position could be a text file that looks like this:

Generation 1:

4 8
........
....*...
...**...
........

And the output could look like this:

Generation 2:

4 8
........
...**...
...**...
........

Source: http://www.codingdojo.org/cgi-bin/index.pl?KataGameOfLife