If we want to use an HTML5 tag (like <mark>) as a wrapping node, the result will be broken in IE 7/8 due to cloneNode() inside the _genReplacer function. IE has a buggy interpretation of this method and returns <:mark> instead (even with html5shim script enabled) - see http://bugs.jquery.com/ticket/6485 as as ref.
The bugs affects both ways of passing a node into the findAndReplaceDOMText function - as a node name and as a stenilNode.
The solution is to clone the node manually, like here http://pastie.org/935834
Pull request attached
Fixing cloneNode issue with HTML elements in IE 7/8
Thanks for the bug report and the fix!