template context question

I am trying to wrap my head around using templates and was wondering 
what the execution context was, puppetmaster or client?  I thought it 
was client since it would have to also account for facter-based 
variables, but recent testing on something I thought was pretty neat 
turned out to cause puppetmaster to segfault in an apparent attempt to 
evaluate the template on the server side.  The template section I was 
using was:

%# This section generates a cfg_dir directive for each directory
%# found within /etc/nagios/client (if any).
<% require 'pathname' %>
<% p = Pathname.new("/etc/nagios/client") %>
<% if File.directory?(p) then %>
# Include any per-client directories specified in the site definition.
<% Dir.glob(File.join(p,"*")).each do |val| %>
<% if File.directory?(p+val) then %>
cfg_dir=<%= p+val %>
<% end %>
<% end %>
<% end %>

I am pretty much learning Ruby on the fly as I work through this, so be 
gentle with me :).  The goal here is to make a nagios.cfg file be able 
to locally determine if there is a /etc/nagios/client directory and 
include each as a configuration directive.  Regardless of whether this 
is the right way to handle the requirement, I'm more curious now whether 
using templates in this way is (a) possible and (b) sensical.  I felt as 
I was doing it that I was violating the philosophy of puppet and I think 
I was punished for it :).

Thanks,
Mark