Here is news of a recent demonstration of the use of stem cells in nerve regeneration:
Stem cells derived from human muscle tissue were able to repair nerve damage and restore function in an animal model of sciatic nerve injury. The researchers [found] that, with prompting from specific nerve-growth factors, the stem cells could differentiate into neurons and glial support cells, including Schwann cells that form the myelin sheath around the axons of neurons to improve conduction of nerve impulses.
In mouse studies, the researchers injected human muscle-derived stem/progenitor cells into a quarter-inch defect they surgically created in the right sciatic nerve, which controls right leg movement. Six weeks later, the nerve had fully regenerated in stem-cell treated mice, while the untreated group had limited nerve regrowth and functionality. Twelve weeks later, treated mice were able to keep their treated and untreated legs balanced at the same level while being held vertically by their tails. When the treated mice ran through a special maze, analyses of their paw prints showed eventual restoration of gait. Treated and untreated mice experienced muscle atrophy, or loss, after nerve injury, but only the stem cell-treated animals had regained normal muscle mass by 72 weeks post-surgery.