Don't set display for replaced text -- just use the container's default display. Also, some small refactoring.

frameworks/compass/stylesheets/compass/utilities/text/_replacement.sass

@@ -1,8 +1,7 @@
 // Hides html text and replaces it with an image.
-=replace-text( !img, !x = "50%", !y = "50%" )
-  :display                block
-  :text-indent            -9999em
-  :overflow               hidden
-  :background-image     = url(!img)
-  :background-position  = !x !y
-  :background-repeat      no-repeat
+// If you use this on an inline element, you will
+// need to change the display to block or inline-block.
+=replace-text( !img, !x = 50%, !y = 50% )
+  :text-indent -9999em
+  :overflow    hidden
+  :background= url(!img) no-repeat scroll !x !y