I think it's because of where you're including the replicated 0's.

This will work:

DECLARE @MilDate VARCHAR(20)

SET @MilDate = '13:38'

SET @MilDAte = REPLACE( @MilDate, ':', '')

SELECT @MilDate

SET @MilDate = LEFT( @MilDate + REPLICATE( '0', 6), 6)

SELECT @MilDate AS Timevalues

SET @MilDate = STUFF( STUFF( @MilDate, 3, 0, ':'), 6, 0, ':')

SELECT @MilDate

SELECT CONVERT( VARCHAR(25), CONVERT( DATETIME, @MilDATE), 100)

EDIT: I lied, close, but jumped the gun. Formatting is off when I apply it to convert to style 100. Back in a minute or two.

Heh, beat myself up with a typo, whoops. All's good.