declare
    @string1 varchar(200),
    @string2 varchar(200)

select
    @string1 = 
    'Those who are enamored of practice without theory are like a pilot who goes '+
    'into a ship without rudder or compass and never has any certainty where he i'+
    's going. Practice should always be based upon a sound knowledge of theory.',
    @string2 = 
    'Those who are enamored of practice without theory are like a pilot who goes '+
    'into a ship without rudder or compass and never has any certainty where she '+
    'is going. Practice should always be based upon a sound knowledge of theory.'

diff_near
--------------------------------------
...ertainty where he is going. Prac...
...ertainty where she is going. Pra...

 
CREATE FUNCTION dbo.Compare(@a nvarchar(4000),@b nvarchar(4000))
RETURNS @diff TABLE(difference_near nvarchar(50))
AS
BEGIN

declare @trima nvarchar(4000)
declare @trimb nvarchar(4000)
declare @origlena int
declare @origlenb int
declare @lena int
declare @lenb int
declare @chara nchar(1)
declare @charb nchar(1)
declare @curpos int
declare @minlen int
declare @factora numeric(9,5)
declare @factorb numeric(9,5)
declare @pretexta int
declare @pretextb int
declare @postexta int
declare @postextb int
declare @resultsa nvarchar(50)
declare @resultsb nvarchar(50)

select @origlena =  LEN(@a), @origlenb =  LEN(@b)

select @trima = REPLACE(REPLACE(REPLACE(@a,' ',''),CHAR(10),''),CHAR(13),''), 
       @trimb = REPLACE(REPLACE(REPLACE(@b,' ',''),CHAR(10),''),CHAR(13),'')

select @lena =  LEN(@trima), @lenb =  LEN(@trimb)

If @trima<>@trimb
begin

select @minlen = case when @lena<=@lenb then @lena else @lenb end

set @curpos = 1

  WHILE @curpos <= @minlen
  BEGIN
    SELECT @chara=SUBSTRING(@trima, @curpos, 1),@charb=SUBSTRING(@trimb, @curpos, 1)

    IF (UPPER(@chara)<>UPPER(@charb)) 

    	BEGIN
		/* 
		   This factoring bit is because we have stripped spaces and CR LF
		   and if we return substring based on @curpos we might well miss
		   the difference because of the missing spaces so we add a few
		   chars based on the difference between the trimmed length of the
		   string and the original length we saved at the start - its very
		   rough but seems to work in most situations 
		*/
		set @factora = cast((@origlena/@lena) as numeric(9,5))
		set @pretexta = CASE when @curpos<20 then 1 else CEILING(@curpos*@factora) end

		set @factorb = cast((@origlenb/@lenb) as numeric(9,5))
		set @pretextb = CASE when @curpos<20 then 1 else CEILING(@curpos*@factorb) end

		IF @lena<50 set @postexta = @lena ELSE set @postexta = 50
		IF @lenb<50 set @postextb = @lenb ELSE set @postextb = 50
		

    		SELECT @resultsa = '....' + SUBSTRING(@a,@pretexta,@postexta) + '....',
		       @resultsb = '....' + SUBSTRING(@b,@pretextb,@postextb) + '....'
    		BREAK
    	END
    ELSE
    SET @curpos = @curpos + 1
    CONTINUE
  END

END

INSERT @diff SELECT @resultsa UNION SELECT @resultsb

RETURN
END

select * from dbo.Compare(@a,@b) 

difference_near                                    
-------------------------------------------------- 
....er has any certainty where he is going. Practi
....er has any certainty where she is going. Pract