I created a table #temp with one field. I inserted four rows in it. Then tried the replace statement as you did.
CREATE TABLE #temp ( word VARCHAR(100))
SELECT * FROM #temp
SELECT REPLACE(word,'oo','**') FROM #temp
You must use the column name ( word in my table) in 1st expression, then the pattern (in singlequotes) in 2nd expression and the replace string pattern(in single quotes) in 3rd expression.
Hope this helps !!!