#CJam, 20

q{__,{\_N+oSt}/;W<}h

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Explanation:

q           read the input (initial string)
{…}h        do … while
  _         copy the current string
  _,        copy and get the length
  {…}/      for each value (say i) from 0 to length-1
    \       bring the string to the top
    _N+o    make a copy, append a newline and print
    St      set the i'th element to S=" "
  ;         pop the last result (array full of spaces)
  W<        remove the last character of the current string
             if the string is empty, the do-while loop terminates

CJam, 20

q{__,{\_N+oSt}/;W<}h

Try it online

Explanation:

q           read the input (initial string)
{…}h        do … while
  _         copy the current string
  _,        copy and get the length
  {…}/      for each value (say i) from 0 to length-1
    \       bring the string to the top
    _N+o    make a copy, append a newline and print
    St      set the i'th element to S=" "
  ;         pop the last result (array full of spaces)
  W<        remove the last character of the current string
             if the string is empty, the do-while loop terminates

#CJam, 20

q{__,{\_N+oSt}/;W<}h

Try it online

#CJam, 20

q{__,{\_N+oSt}/;W<}h

Try it online

Explanation:

q           read the input (initial string)
{…}h        do … while
  _         copy the current string
  _,        copy and get the length
  {…}/      for each value (say i) from 0 to length-1
    \       bring the string to the top
    _N+o    make a copy, append a newline and print
    St      set the i'th element to S=" "
  ;         pop the last result (array full of spaces)
  W<        remove the last character of the current string
             if the string is empty, the do-while loop terminates