I played around with it a bit, and the only way I could get the original varialbe to set properly was to set it like this:

var="c:\\\ndm\stores"

I got the "command garbled" error you're getting, but only when stuffing the results of the echo|sed command into a variable. If I just run that one on the command line against the variable, I get no error. I don't know what's different, though. Possibly, sed doesn't like the back-ticked environment of the script command.

Anyway to assign it to a variable?

How about avoiding echo? Note the single quotes to stop shell interpreting \ .

var='c:\dir1\dir2\name'
cat <<EOF
$var
EOF

Output is:
c:\dir1\dir2\name