In older versions of Prototype, at least, Element.replace() handles HTML elements using their outerHtml property. This causes problems on Internet Explorer, because the outerHtml property is read-only for some elements:

The property is read/write for all objects except the following, for which it is read-only: CAPTION, COL, COLGROUP, FRAMESET, HTML, TBODY, TD, TFOOT, TH, THEAD, TR.

This issue seems to have been fixed already several months ago with a workaround.