I know this question is about bash, but - just for the record - ksh93 is smarter and implements it as expected:
$ ksh -c 'i=5; for x in {1..$i}; do echo "$x"; done'
1
2
3
4
5
$ ksh -c 'echo $KSH_VERSION'
Version JM 93u+ 2012-02-29
$ bash -c 'i=5; for x in {1..$i}; do echo "$x"; done'
{1..5}