'Lieu' is French. It might be in the English dictionary, too, but I know that at least in American English, 'lieu' is not used. You can either say 'in place of' or 'instead of'. They mean the same thing. There are no differences, but 'instead of' is more common.

You will hear "In lieu of" used frequently by newscasters, journalists, politicians and administrators etc. anytime someone wants to sound cultured and well educated. Here's a joke: "In lieu of" is used in place of instead of.