If the following script seems convoluted/unneccessarily complex, it's because the do_it function is a shortened, combined version of several actual functions. This is adapted from a dynamic block template class I'm working on (similar to FastTemplate).

<?

function do_it($str,$var,$val) {
	// $str => string to process
	// $var => variable to replace
	// $val => value of the variable

	ereg("<!-- Start -->(.+)<!-- End -->",$str,$reg);

	// Get the template block

	$block=$reg[0]; 	print "\nBLOCK: [$block]\n";

	// Get the stuff between Begin and End

	$innards=$reg[1]; 	print "\nINNARDS: [$innards]\n";

	// Replace the variable with its value

	$updated_innards=str_replace("{$var}",$val,$innards);

	// Using ereg_replace instead of str_replace always works

	$updated_innards_ereg_replace=ereg_replace("{$var}",$val,$innards);

	print "\n*********************************\n";
	print "*\n* UPDATED_INNARDS: [$updated_innards]\n";
	print "*\n* UPDATED_INNARDS_EREG_REPLACE: [$updated_innards_ereg_replace]\n";
	print "*\n*********************************\n";

	// Replace the template block with the text containing 
	//   the evaluated variables

	$updated_text=str_replace($block,$updated_innards,$str);

	print "\nUPDATED_TEXT: [$updated_text]\n";

}


Header("Content-type: text/plain");
 
$var="addr";			// {variable} to replace
$val="you@address.com";	// value to replace {variable} with

// The only difference between $text1 and $text2 is a space 
//	after the second {addr} in $text1

$text1="<UL><!-- Start --><LI>{addr}, that's {addr} <!-- End --></UL>";
$text2="<UL><!-- Start --><LI>{addr}, that's {addr}<!-- End --></UL>";


// Show $text1 with the <!-- Start --> .. <!-- End --> blocks
//	replaced with "<LI>you@youraddress, that's you@youraddress"

print "\n=============================== USING TEXT1 (NO PROBLEM) ======\n";
print do_it($text1,$var,$val);


// Try to do the same for $text2

print "\n\n\n=============================== USING TEXT2 ======\n";
print do_it($text2,$var,$val);

?>

-- Configured with all optional modules
-- php3.ini not changed
-- simple substitution using str_replace works:

<? 

$text1="<!-- Begin --><LI>{addr} <!-- End -->"; // with the space
$text2="<!-- Begin --><LI>{addr}<!-- End -->";

$text1=str_replace("{addr}","you@address.com",$text1);
$text2=str_replace("{addr}","you@address.com",$text2);

Header("Content-type: text/plain");
print "TEXT1: [$text1]\n";
print "TEXT2: [$text2]\n";

?>