how to replace string in file using msbuild?

There is very simple approach to just replace string in a file:

  <Target Name="Replace" AfterTargets="CoreCompile">
      <PropertyGroup>
          <InputFile>c:\input.txt</InputFile>
          <OutputFile>c:\output.txt</OutputFile>
      </PropertyGroup>
      <WriteLinesToFile
          File="$(OutputFile)"
          Lines="$([System.IO.File]::ReadAllText($(InputFile)).Replace('from','to'))"
          Overwrite="true"
          Encoding="Unicode"/>
  </Target>

See https://docs.microsoft.com/en-us/visualstudio/msbuild/property-functions?view=vs-2019 to explore inlinable C# code. [System.Text.RegularExpressions.Regex] included into the list.

This is no longer required... you can now inject C# into the project/build file...

Define a custom task and parameters as follows:

<UsingTask TaskName="ReplaceFileText" TaskFactory="CodeTaskFactory" AssemblyFile="$(MSBuildToolsPath)\Microsoft.Build.Tasks.v4.0.dll">
  <ParameterGroup>
    <InputFilename ParameterType="System.String" Required="true" />
    <OutputFilename ParameterType="System.String" Required="true" />
    <MatchExpression ParameterType="System.String" Required="true" />
    <ReplacementText ParameterType="System.String" Required="true" />
  </ParameterGroup>
  <Task>
    <Reference Include="System.Core" />
    <Using Namespace="System" />
    <Using Namespace="System.IO" />
    <Using Namespace="System.Text.RegularExpressions" />
    <Code Type="Fragment" Language="cs">
      <![CDATA[
            File.WriteAllText(
                OutputFilename,
                Regex.Replace(File.ReadAllText(InputFilename), MatchExpression, ReplacementText)
                );
          ]]>
    </Code>
  </Task>
</UsingTask>

Then simply call it like any other MSBuild task

<Target Name="AfterBuild">
  <ReplaceFileText 
    InputFilename="$(OutputPath)File.exe.config" 
    OutputFilename="$(OutputPath)File.exe.config" 
    MatchExpression="\$version\$" 
    ReplacementText="1.0.0.2" />
</Target>

The above example replaces "$version$" with "1.0.0.2" in the "File.exe.config" located in the output directory.