In your original script (which was passing many more of the tests), you had:
sed "s/$p1/$p2/g" "$p3" > temp.out
mv temp.out "$p3"Now you have:
sed "s/$p1/$p2/g" $FILE >...
Did it look like you were getting the correct set of arguments to give to sed when you tried my sample script? (Did you try my sample script before changing it?)