>>"She said Niagara Falls is an ugly little town" implies a permanent truth, was valid then, is valid now;
>
>But how could she predict that it would permanently remain ugly? She can only give her opinion of that time.
>
>>"She said Niagara Falls was an ugly little town" leaves a possibility that something has changed meanwhile (i.e. nuclear bomb fell on Clifton Hill), so we only know for sure that it was true at the time.
>
>That only works with American bad grammar. If that were the case it should read "She said Niagara Falls had been an ugly little town"

The response from the guy:

OK, just so you don't have to translate stuff again, I'll write in English right away:

First of all, the remark about "bad American grammar" is utterly unscientific (i.e. your friend has obviously never read even an introductory text in linguistics; there are no "good" or "bad" grammars, there are just powerful and less powerful social groups; all mental grammars are of equal objective, i.e. scientific value). On top of that, the remark is incredibly snotty, but then, you can take the Brit out of a snotty place, but you can't take the snottiness out of a Brit. Finally, your friend might benefit from the insight that Canadians aren't Americans. You never know when knowing stuff like this may come in handy.

Now on to our examples:

"She said she would come" - Point taken. She may well not have come, but, then again, she might have.

"She said she will come." - This certainly implies that the estimated time of her arrival is in the future of the speaker reporting her words.

...

"She said Niagara Falls was an ugly little town" is not the same as "She said Niagara Falls had been an ugly little town". While the first sentence implies that the town was ugly at the time she uttered the sentence (and may or may not be ugly now), the second one clearly implies that the town had been ugly at a time prior to the time she uttered the sentence, while it may indeed have changed so as not to have been ugly anymore at the time when she was speaking. Note that both times are "past" with regard to the time of the reporting, but the time expressed by "had been" is "double past", whereas the one expressed by "said" is merely past with respect to now.