"stead" means "place" rather than "in place of another." otherwise, "in stead of another" would mean "in in place of another of another."
"instead" is truly formed from "in" + "stead"
From OED: The two words in stead = ‘in place’, rarely written as one word before 1620, but seldom separately after c1640, except when separated by a poss
Thank you for this very clear explanation of the use of "stead" and "instead"! I am learning english and I came across "in the stead of" in "the Lord of the Rings" movie few days ago ; that sounded a bit formal for me at first but after a while I realized it was a sort of ancient times context and that could be understand in the kind of context! So now ,with yr help ,I know it was truly suited t