Perhaps something like this might help?

CREATE FUNCTION [dbo].[ProperCase]

(

@MyStr VARCHAR(8000) = NULL

)

RETURNS TABLE WITH SCHEMABINDING AS

RETURN

SELECT ProperCaseStr=

(

SELECT CASE WHEN [Matched] = 1 THEN STUFF(Item, 1, 1, UPPER(LEFT(Item, 1))) ELSE Item END

FROM dbo.PatternSplitCM(@MyStr, '[a-zA-Z]') b

ORDER BY ItemNumber

FOR XML PATH(''), TYPE

).value('.', 'varchar(8000)')

;

My ProperCase iTVF uses PatternSplitCM which can be found in the 4th article in my signature links.

WITH SampleData (MyStr) AS

(

SELECT 'The cat in the hat'

UNION ALL SELECT 'the mouse is in the parlour. but the dog is out to lunch'

)

SELECT MyStr, ProperCaseStr

FROM SampleData

CROSS APPLY dbo.ProperCase(MyStr);

You'd need to verify of course that it handles all of the cases you want.