> if the file is open we're kind of assuming we need it, aren't we? What happens if the system tries to read the file on disc and it's been replaced or removed? Why shouldn't that end in an earth-shattering kaboom?

On Unix, the directory entry does not point directly to the file contents. It points to an "inode", which contains the file metadata (owner, permissions, timestamps) and points to the file contents. When you remove a file, you are actually removing the directory entry; the inode will only be removed when nothing else points to or is using it. An open file keeps a reference to the inode, so the system can still read the file just fine, even if the directory entry has been removed.

Some other operating systems, like MS-DOS and Windows 9x, do not have that distinction. On them, the directory entry has the same role as the inode on Unix-style systems, which means it cannot be removed while the file is in use. The Windows NT line, when using NTFS, does have something similar to the directory entry and inode split from Unix, but it still denies removing or replacing in-use files for compatibility with Windows 9x.

> Isn't the problem actually not being able to effectively close it to then replace it?

The problem is when another software (for instance, a file indexer or an antivirus) has the file open. You cannot force the other program to release its grip on the file; the workaround is to set the "pending delete" flag for the file and schedule a reboot.