I think it has to do with single and double quotes. I had the same problem using tiffcp.exe and it took me several days of trial and error to get it working. I was not able to get PDFtk working with variables:
What do you think?
$input = 'one.PDF two.PDF'
$options = ' cat output '
$output = ' c:\temp\document.PDF'
& pdftk.exe -version
#this does work:
&pdftk.exe one.PDF two.PDF cat output "c:\temp\document.PDF"
#this doesn't work:
& pdftk.exe $input cat output $output