That's because your scripts aren't the same:
C:\WINDOWS\system32\WindowsPowerShell\v1.0\powershell.exe -ExecutionPolicy Unrestricted -Command "& 'c:\Test PS\Palindrome.ps1' -param Hello"
C:\WINDOWS\system32\WindowsPowerShell\v1.0\powershell.exe -ExecutionPolicy Unrestricted -Command \&'D:\Documents\AA Backed Up\My Projects\GeneralTesting\GeneralTesting\bin\Debug\Palindrome.ps1' -param Hello"
Start by replacing that "\" with a double quote, and adding a space after the ampersand:
string newfile = string.Concat("\"& '" + match1[0] + "'", " ", match1[1], "\"");