The main problem is that it doesn't deal with overlapping regexes very well, (i.e. your regex matches parts of your replacement string).

Suppose you have the string:

"The wodchuck at the zo stod on the stoop";
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You realize that it will only make sense after replacing the first three 'o's with 'oo's

my $str = "The wodchuck at the zo stod on the stoop";
$str =~ s/o/oo/i for 1..3;
print "$str\n";
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Oops, that yields:

The woooodchuck at the zo stod on the stoop
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The other solutions would have produced:

The woodchuck at the zoo stood on the stoop
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-Blake