forgive me for jumping to preg, but its usually a faster alternative to ereg and is more widely used, since its derived from perl.
<?php
$text = "this is the user submitted text, they decided to make a <link>http://www.phpbuilder.com/forum</link> in right here!";
$text = preg_replace("/<link>(.*?)<\/link>/i", "<a href=\"\\1\">\\1</a>", $text);
echo $text;
?>
thats the basic idea of how it works right there.