yeah.. for some reason when i was including the php file the $title wasn't being processed. This ways seems to work and looks to be the better way for what I am doing.
I just put ![title]! in the place where I had $title.
$html= File_Get_Contents('/Library/WebServer/Documents/template.html');
$find[] = '![title]!';
$find[] = '![keywords]!';
$find[] = '![body]!';
$find[] = '![parenttitle]!';
$replace[] = $xml->title;
$replace[] = $xml->keywords;
$replace[] = $xml->body;
$replace[] = $xmlparent->title;
$html = str_replace($find, $replace, $html);
print $html;