Yup, this script has its limitations.

In my case I didn't need it to handle more than one SSI include on one line (but I should have put that in the header)

Since that shtml regexp is only meant to refer to links, it could maybe be changed to
s/href=(.+)\.shtml/href=$1.html/gi
although this would miss links in image maps and it wouldn't work if the href was split over two lines. Opening a can of worms....

It should definately have had the global modifier :)