This seems to be a psql(?) bug:

test.sql
--------
create or replace function test1() returns void as $$
declare
  var1 integer;
  var2 integer;
  var3 integer;
begin
end;
$$ language plpgsql;


miano=> \i test.sql 
psql:test.sql:3: ERROR:  unterminated dollar-quoted string at or near "$$   
declare
  var1 integer;" at character 52
psql:test.sql:4: ERROR:  syntax error at or near "var2" at character 3
psql:test.sql:5: ERROR:  syntax error at or near "var3" at character 3
psql:test.sql:7: ERROR:  syntax error at or near "end" at character 7
psql:test.sql:8: ERROR:  unterminated dollar-quoted string at or near "$$ 
language plpgsql;" at character 1


It compiles when run from the PgAdmin III Query tool, but fails when run from 
psql (see above output).

miano=> select version();
                                              version                           
                   
---------------------------------------------------------------------------------------------------
 PostgreSQL 8.1.3 on i686-pc-linux-gnu, compiled by GCC gcc (GCC) 3.4.4 
20050721 (Red Hat 3.4.4-2)
(1 row)


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