diff -Naur rsync-3.0.7/fileio.c rsync-3.0.7.patched/fileio.c
--- rsync-3.0.7/fileio.c	2009-01-17 22:41:35.000000000 +0100
+++ rsync-3.0.7.patched/fileio.c	2010-02-26 12:09:50.967310000 +0100
@@ -26,10 +26,54 @@
 #endif
 
 extern int sparse_files;
+extern int inplace;
 
 static char last_byte;
 static OFF_T sparse_seek = 0;
 
+static char sparse_check_buf[16384];
+static char sparse_null_buf[16384];
+int
+do_sparse_lseek(int f, OFF_T seekoff)
+{
+	int	ret;
+	int	read_len;
+
+	/* we cannot just skip over the sparse part as we are writing
+	 * inplace and the target might just not be sparse. So check
+	 * first if the target really contains zeroes */
+
+	while(seekoff) {
+		int l3 = 0, l4 = 0, rlen;
+
+		read_len = MIN(seekoff, sizeof(sparse_check_buf));
+
+		rlen = read(f, sparse_check_buf, read_len);
+		if (rlen < 0 && errno == EINTR)
+			continue;
+		if (rlen < 0)
+			return rlen;
+
+		while(l3 < rlen && sparse_check_buf[l3] == 0)
+			++l3;
+		while(l4 < rlen-l3 && sparse_check_buf[rlen-(l4+1)]==0)
+			++l4;
+
+		do_lseek(f, -rlen + l3, SEEK_CUR);
+
+		while((ret = write(f, sparse_null_buf, rlen-(l3+l4))) < 0) {
+			if (ret < 0 && errno == EINTR)
+				continue;
+			return ret;
+		}
+
+		do_lseek(f, read_len - rlen + l4, SEEK_CUR);
+
+		seekoff -= read_len;
+	}
+	return 0;
+}
+
 int sparse_end(int f)
 {
 	int ret;
@@ -37,7 +81,14 @@
 	if (!sparse_seek)
 		return 0;
 
-	do_lseek(f, sparse_seek-1, SEEK_CUR);
+	if (inplace) {
+		ret = do_sparse_lseek(f, sparse_seek-1);
+		if (ret < 0)
+			return ret;
+	} else {
+		do_lseek(f, sparse_seek-1, SEEK_CUR);
+	}
+
 	sparse_seek = 0;
 
 	do {
@@ -65,8 +116,14 @@
 	if (l1 == len)
 		return len;
 
-	if (sparse_seek)
+	if (sparse_seek && inplace) {
+		ret = do_sparse_lseek(f, sparse_seek);
+		if (ret < 0)
+			return ret;
+	} else if (sparse_seek) {
 		do_lseek(f, sparse_seek, SEEK_CUR);
+	}
+
 	sparse_seek = l2;
 
 	while ((ret = write(f, buf + l1, len - (l1+l2))) <= 0) {
diff -Naur rsync-3.0.7/options.c rsync-3.0.7.patched/options.c
--- rsync-3.0.7/options.c	2009-12-21 23:40:41.000000000 +0100
+++ rsync-3.0.7.patched/options.c	2010-03-02 08:26:11.218877000 +0100
@@ -1575,14 +1575,6 @@
 			bwlimit_writemax = 512;
 	}
 
-	if (sparse_files && inplace) {
-		/* Note: we don't check for this below, because --append is
-		 * OK with --sparse (as long as redos are handled right). */
-		snprintf(err_buf, sizeof err_buf,
-			 "--sparse cannot be used with --inplace\n");
-		return 0;
-	}
-
 	if (append_mode) {
 		if (whole_file > 0) {
 			snprintf(err_buf, sizeof err_buf,
diff -Naur rsync-3.0.7/receiver.c rsync-3.0.7.patched/receiver.c
--- rsync-3.0.7/receiver.c	2009-04-12 21:48:59.000000000 +0200
+++ rsync-3.0.7.patched/receiver.c	2010-02-26 11:41:12.253338000 +0100
@@ -691,7 +691,10 @@
 
 		/* We now check to see if we are writing the file "inplace" */
 		if (inplace)  {
-			fd2 = do_open(fname, O_WRONLY|O_CREAT, 0600);
+			if (sparse_files > 0)
+				fd2 = do_open(fname, O_RDWR|O_CREAT, 0600);
+			else
+				fd2 = do_open(fname, O_WRONLY|O_CREAT, 0600);
 			if (fd2 == -1) {
 				rsyserr(FERROR_XFER, errno, "open %s failed",
 					full_fname(fname));