What version of python are you running? Can you try it from the command line and post the results, like below? It seems to be working for me. I basically copied and pasted straight from your post.
Python 2.6.4 (r264:75706, Dec 7 2009, 18:45:15)
[GCC 4.4.1] on linux2
Type "help", "copyright", "credits" or "license" for more information.
>>> data = [
... [5,3,0,0,7,0,0,0,0],
... [6,0,0,1,9,5,0,0,0],
... [0,9,8,0,0,0,0,6,0],
... [8,0,0,0,6,0,0,0,3],
... [4,0,0,8,0,3,0,0,1],
... [7,0,0,0,2,0,0,0,6],
... [0,6,0,0,0,0,2,8,0],
... [0,0,0,4,1,9,0,0,5],
... [0,0,0,0,8,0,0,7,9]
... ]
>>>
>>> element = 4
>>> x = 0
>>> y = 0
>>>
>>> data
[[5, 3, 0, 0, 7, 0, 0, 0, 0], [6, 0, 0, 1, 9, 5, 0, 0, 0], [0, 9, 8, 0, 0, 0, 0, 6, 0], [8, 0, 0, 0, 6, 0, 0, 0, 3], [4, 0, 0, 8, 0, 3, 0, 0, 1], [7, 0, 0, 0, 2, 0, 0, 0, 6], [0, 6, 0, 0, 0, 0, 2, 8, 0], [0, 0, 0, 4, 1, 9, 0, 0, 5], [0, 0, 0, 0, 8, 0, 0, 7, 9]]
>>> data[x][y] = element
>>> data
[[4, 3, 0, 0, 7, 0, 0, 0, 0], [6, 0, 0, 1, 9, 5, 0, 0, 0], [0, 9, 8, 0, 0, 0, 0, 6, 0], [8, 0, 0, 0, 6, 0, 0, 0, 3], [4, 0, 0, 8, 0, 3, 0, 0, 1], [7, 0, 0, 0, 2, 0, 0, 0, 6], [0, 6, 0, 0, 0, 0, 2, 8, 0], [0, 0, 0, 4, 1, 9, 0, 0, 5], [0, 0, 0, 0, 8, 0, 0, 7, 9]]
>>>