A B737-700 CAPT SELECTED BOTH IRS SWITCHES TO ALIGN IN FLT BELIEVING THEM TO BE IN THE INCORRECT POSITION. LNAV AND SLAVED HDG FUNCTIONS WERE LOST FOR THE REMAINDER OF THE FLT WHICH DIVERTED FOR WX.

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CAPT'S HDG SEEMED TO BE PRECEDING AND REQUIRED PERIODIC UPDATES WITH THE MAGNETIC COMPASS. REVIEWING QRH AND COCKPIT REF SOURCES I FELT WE HAD SOME TYPE OF PROB WITH THE L IRS. GLANCING UP AT THE OVERHEAD IRS MODE SELECTOR UNIT FROM THE 'NEW' REF POS IN THE CAPT'S SEAT (I'M STILL A FAIRLY LOW-TIME CAPT) IT APPEARED THAT THE L IRS WAS IN ATT AND NOT NAV. AT THAT POINT I MISTAKENLY BELIEVED THE SWITCH HAD BEEN LEFT IN THE WRONG POS. I QUICKLY ROTATED THE SWITCH ONE POS COUNTERCLOCKWISE; THINKING I WAS MOVING IT TO NAV. AFTER 7 YRS OF QUICK ALIGNMENTS; I WAS CONDITIONED TO ROTATING BOTH SWITCHES; SO I ROTATED THE R SWITCH ALSO. UNFORTUNATELY I HAD ACTUALLY SUCCEEDED IN MOVING BOTH SWITCHES TO ALIGN; AS THEY WERE BOTH INDEED ALREADY IN NAV AND IT WAS SIMPLY THE PARALLAX VIEW WHICH CAUSED ME TO ERR. THE AUTOPLT DISENGAGED AS I RETURNED THE SWITCHES TO THE NAV POS. WE LOST MAP DISPLAY AND LNAV. WE ADVISED ATC WE HAD AN LNAV FAILURE AND WERE GIVEN A HDG TO FLY UNTIL WE COULD RECEIVE AND NAV TO THE NEXT VOR FIX. WE CONTINUED USING VOR NAV WHILE REVIEWING COCKPIT RESOURCES; ULTIMATELY DETERMINING THAT WE WERE NOT GOING TO BE ABLE TO REGAIN LNAV CAPABILITY IN THE AIR. I INITIATED A VOICE CONTACT WITH DISPATCH AND REQUESTED MAINT GET ONLINE. I TOLD THEM THE WHOLE STORY. THEY CONCURRED THAT LNAV WAS LOST AND FOR A PERIOD OF TIME WE CONTINUED. ULTIMATELY DISPATCH CONTACTED US AS WE WERE PASSING JUST N OF ZZZ AND ADVISED US THAT WITH A LINE OF TSTMS W OF OUR DEST; IT WOULD BE BEST IF WE LANDED IN ZZZ AND HAD MAINT CORRECT THE ISSUE. WE LANDED UNEVENTFULLY IN ZZZ. MAINT CORRECTED THE ISSUE; AND WE DEPARTED FOR AN UNEVENTFUL FLT TO OUR DEST. FOLLOW BOXED MEMORY ITEM ON FRONT OF QRH; SPECIFICALLY BULLET POINT E; 'TAKE APPROPRIATE ACTION.' ALSO FOLLOW FOM PROCS; THE FO SHOULD HAVE BEEN ADVISED OF WHAT I WAS THINKING OF DOING BEFORE I DID IT. HE PROBABLY WOULD NOT HAVE LET ME! SUPPLEMENTAL INFO FROM ACN 794806: WITHIN A FEW MINS; WE RECOVERED BASIC ATTITUDE AND HDG INFO ON BOTH PFD'S. WE WERE ABLE TO ENGAGE THE AUTOPLT. AT ALL TIMES; ACFT CTL WAS MAINTAINED. WE LOST LNAV NAV CAPABILITY. OUR MFD'S WERE BLANK. THE IRS ALIGNMENT PANEL ON THE OVERHEAD WAS BLANK AS WELL. THERE WERE NO FAULTS ON THE OVERHEAD PANEL. SINCE WE WERE CLRED DIRECT TO ZZZ1 AND WE WERE STILL ABOUT 500 MI AWAY; WE ASKED ATC FOR A HDG TO ZZZ1. WE USED VOR NAV FROM THAT POINT. WE ALSO NOTICED THAT WE HAD TO KEEP UPDATING OUR HDG INFO IN THE FMC. EACH TIME WE DID THIS; THE ACFT WOULD CHANGE HDG TO MATCH WHAT WE ENTERED (WE HAD TO UPDATE OUR MAGNETIC HDG OFF THE STANDBY COMPASS; EVERY 10 MINS).