Are there practical scenarios where inserts + deletes are faster than updates? (SQL Server)
There are many reasons that an insert and delete can be faster in practice than an single update that achieves the same end result. I am not even going to attempt to list all the considerations, but for example:


Updates that affect an index key might appear to do an in-place update from the execution plan, but this is not the case at the lowest level. An update that affects an index key results in a separate delete and insert at the Storage Engine level in SQL Server 2005 onward.
Updates that change the value a key in a unique index generally mean that SQL Server has to introduce a Split/Sort/Collapse combination in the execution plan to avoid transient unique key violations. The Split explicitly turns each update into separate delete and insert operations. The cost of the extra operators (particularly the Sort) can often result in reduced performance. Plans that insert or delete to a unique index do not require this same protection, though Split operators may still be seen for other reasons.
There are internal optimizations available for inserts that simply do not apply to updates (or deletes). Some of these are associated with minimal logging, and some require a hint or trace flag (like 610). Other optimizations do not require trace flags or hints, and are not exposed in execution plans.



  I mean the performance gains are there


This is the key point. I can tell you that my experience has been that updates and deletes are generally less optimized in SQL Server than inserts, but the key is to test in your environment. An insert and delete will not always be faster than a single update, in much the same way that separate operations will not always be faster than a single MERGE (though that is probably even more common).

There are even cases where an insert followed by an update (!) can be faster than a single update. Though not directly related to your example, you may find the details of that in my article, "Optimizing Update Queries" interesting.

Also related:


Optimizing T-SQL queries that change data
Minimal Logging with INSERT…SELECT and Fast Load Context
Minimal Logging with INSERT…SELECT into Empty Clustered Tables
Minimal Logging with INSERT…SELECT into Heap Tables