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root@bt> cat fileA
Linux Unix Solaris Windows
root@bt> cat fileC
Windows
root@bt> cat fileD
Oops

root@bt> sed "s/$(<fileC)/$(<fileD)/g" fileA
Linux Unix Solaris Oops
Storing it in fileB
...

Which system are you using? UNIX tool behave differently between systems

I think you're missing the last slash. And if your sed takes files as argument, the `<` is useless:
sed...

1)
sed -i s/search/replace/' fileA

2) Assume that fileC, fileD contains just one string.
try this:
TO_GREP=`cat fileC`
TO_REP=`cat fileD`
sed "s/$TO_GREP/$TO_REP/" fileA