how to change an element type using jquery

Not sure about jQuery. With plain JavaScript you could do:

var new_element = document.createElement('h1'),
    old_attributes = element.attributes,
    new_attributes = new_element.attributes;

// copy attributes
for(var i = 0, len = old_attributes.length; i < len; i++) {
    new_attributes.setNamedItem(old_attributes.item(i).cloneNode());
}

// copy child nodes
do {
    new_element.appendChild(element.firstChild);
} 
while(element.firstChild);

// replace element
element.parentNode.replaceChild(new_element, element);

DEMO

Not sure how cross-browser compatible this is though.

A variation could be:

for(var i = 0, len = old_attributes.length; i < len; i++) {
    new_element.setAttribute(old_attributes[i].name, old_attributes[i].value);
}

For more information see Node.attributes ^[MDN].

@jakov and @Andrew Whitaker

Here is a further improvement so it can handle multiple elements at once.

$.fn.changeElementType = function(newType) {
    var newElements = [];

    $(this).each(function() {
        var attrs = {};

        $.each(this.attributes, function(idx, attr) {
            attrs[attr.nodeName] = attr.nodeValue;
        });

        var newElement = $("<" + newType + "/>", attrs).append($(this).contents());

        $(this).replaceWith(newElement);

        newElements.push(newElement);
    });

    return $(newElements);
};

Here's one way you could do it with jQuery:

var attrs = { };

$.each($("b")[0].attributes, function(idx, attr) {
    attrs[attr.nodeName] = attr.nodeValue;
});


$("b").replaceWith(function () {
    return $("<h1 />", attrs).append($(this).contents());
});

Example: http://jsfiddle.net/yapHk/

Update, here's a plugin:

(function($) {
    $.fn.changeElementType = function(newType) {
        var attrs = {};

        $.each(this[0].attributes, function(idx, attr) {
            attrs[attr.nodeName] = attr.nodeValue;
        });

        this.replaceWith(function() {
            return $("<" + newType + "/>", attrs).append($(this).contents());
        });
    };
})(jQuery);

Example: http://jsfiddle.net/mmNNJ/

@Jazzbo's answer returned a jQuery object containing an array of jQuery objects, which wasn't chainable. I've changed it so that it returns an object more similar to what $.each would have returned:

    $.fn.changeElementType = function (newType) {
        var newElements,
            attrs,
            newElement;

        this.each(function () {
            attrs = {};

            $.each(this.attributes, function () {
                attrs[this.nodeName] = this.nodeValue;
            });

            newElement = $("<" + newType + "/>", attrs).append($(this).contents());

            $(this).replaceWith(newElement);

            if (!newElements) {
                newElements = newElement;
            } else {
                $.merge(newElements, newElement);
            }
        });

        return $(newElements);
    };

(Also did some code cleanup so it passes jslint.)