Cannot perform alter on 'dbo. objectname' because it is an incompatible object type

Now you cocould try it yourself:

-- First, we create a inline-table function which returns a table
Create Function DBO. ufnfunctiontest (@ Param int, @ param1 INT)
Returns table
As
Return
(
Select 1 as ID
)

-- Then, we want to alter it to a multi-statement table-valued function,
-- And we will get an error here
Alter function DBO. ufnfunctiontest (@ Param int, @ param1 INT)
Returns @ TT table
(
Id int
)
Begin
Insert into @ TT values (1)
Return
End

If you really want to "alter" the type of your function, actually you need to drop it first, then create a new one.

Solution: delete ufnfunctiontest and create ufnfunctiontest.

Http://www.cnblogs.com/xingyukun/archive/2008/05/21/1203711.html