How can I load the contents of a text file into a batch file variable?

If your set command supports the /p switch, then you can pipe input that way.

set /p VAR1=<test.txt
set /? |find "/P"

The /P switch allows you to set the value of a variable to a line of input entered by the user. Displays the specified promptString before reading the line of input. The promptString can be empty.

This has the added benefit of working for un-registered file types (which the accepted answer does not).

Use for, something along the lines of:

set content=
for /f "delims=" %%i in ('filename') do set content=%content% %%i

Maybe you’ll have to do setlocal enabledelayedexpansion and/or use !content! rather than %content%. I can’t test, as I don’t have any MS Windows nearby (and I wish you the same :-).

The best batch-file-black-magic-reference I know of is at http://www.rsdn.ru/article/winshell/batanyca.xml. If you don’t know Russian, you still could make some use of the code snippets provided.