I have a Heathkit IP-27 bench supply that I got at the dump. Its
problem is that the current limiter doesn't work due to a bad
transistor. Unfortunately, the transistor is a germanium one and
replacements are $30!

I found a forum post where the guy had substituted a silicon transistor
(TIP32C) and he said a germanium diode in the base circuit should also
be replaced with a silicon one. My question is: why does the diode need
to be replaced?

Here is the relevant part of the circuit diagram (transistor Q1 & diode D7):
http://imgur.com/a/43wmd

Thanks,
Bob