"The query processor could not produce a query plan from the optimizer because a query cannot update a text, ntext, or image column and a clustering key at the same time."
The message is clear but should actually read:
"The query processor could not produce a query plan from the optimizer because a query cannot update a text, ntext, or image column and a clustering key at the same time when multiple rows might be affected."
It is mentioned in the Books Online in the notes of the UPDATE statement. There is a little change in behavior between SQL Server 2000 and SQL Server 2005 however.
The books online for SQL Server 2000 state:
"If an update query could alter more than one row while updating both the clustering key and one or more text, image, or Unicode columns, the update operation fails and SQL Server returns an error message."
The books online for SQL Server 2005 state:
"If the UPDATE statement could change more than one row while updating both the clustering key and one or more text, ntext, or image columns, the partial update to these columns is executed as a full replacement of the values."
So the restriction is a bit less drastic in SQL Server 2005 but it might have a performance impact though. Obviously updating the clustering key is something you wouldn't want to do too often either.
I was wondering where this restriction was coming from so I decided to ask the only person who would know the answer since the internet had really no reference to why this was happening and I couldn't come up with a reason myself either. Paul Randal was nice enough to share that it was necessary to prevent replication from breaking.