This has been recently been tested in Poland I think, where new nerves were grown from stem cells and transplanted, the man who was paralysed is starting to walk again.
Replacement is very difficult as nerves form a network and run around, through and within tissues. As Duane mentioned there is exciting work to suggest that activating nerves that have been inactive for long periods by providing fresh cells might be able to restore function. There was a very interesting program on BBC Horizon about this study.
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