Well I found it a problem when I tried to program a Sieve Of Eratosthenes for project Euler. Also when I considered a grid based alife simulation. I guess the only way would be to use a process per cell?

Sometimes the mutable structures get passed around in the function arguments, so you might do a sequence of tail recursive calls and on each call you pass in the next board state to the same function. I would hope the Erlang Questions mailing list would help you if you posted a small example and explained your troubles to them. There are lots of very clever Erlang people there.

http://www.erlang.org/faq.html

Might try it again - not that I didn't enjoy it, it was fun.