Inconsistencies with "grep" in do shell script

Question

I've looked at this every way I can think of, but I've been unable to figure out why one script works and the other doesn't. Ideas would be appreciated.
--SCRIPT 1 (works)
set T to "one cat
two lions
one dog"
do shell script "echo " & quoted form of T & " | grep one"
temp.file for SCRIPT 2 is:
one cat
two lions
one dog
--SCRIPT 2 (grep doesn't work)
set T to do shell script "cat ~/temp.file"
do shell script "echo " & quoted form of T & " | grep one"
2.7G5 AND OTHERS   Mac OS X (10.4.6)  

Answer 1

(*
Confirmation that the output of the cat command is being interpreted as one line is gained by using sed in place of grep. If, with sed, the global form of the command isn't used, then only the first "one" is changed, whereas, if the /g form is used, then both instances of "one" are changed:
--SCRIPT 1 (works)
set T to "one cat
two lions
one dog"
do shell script "echo " & quoted form of T & " | sed 's/one/three/'"
--SCRIPT 2 (changes only first instance of "one", implying single line)
set T to do shell script "cat ~/temp.file"
do shell script "echo " & quoted form of T & " | sed 's/one/three/'"
--SCRIPT 2 (revised to include g)
set T to do shell script "cat ~/temp.file"
do shell script "echo " & quoted form of T & " | sed 's/one/three/g'"
--Of course, if grep also sees only one line, its output is correct. But this whole analysis is confused (or enlightened?) by doing this:
set T to do shell script "cat -n ~/temp.file"
or set T to do shell script "cat -v ~/temp.file"
both of which seem to show the output of cat as three lines.
In the real world, the content of temp.file is complex and multiline so somehow I need to straighten things out at the cat command if possible.