Why does one work and the other doesn't?
SELECT REPLACE(N'IAșI' ,N'ș','x') -- doesn't match (returns 'IAșI')
SELECT REPLACE('IAșI' ,'ș','x') -- works (returns 'IAxI')
My guess would be that in the second example SQL Server sees 'ș' as 2 characters (0x19 02) and doesn't do some collation optimisations that ruin the multibyte match.
What should be done for the multibyte example to work?