how do I ignore special characters in sed

Try escaping the '.' and the '' so that shell interpreter will put an actual slash in the string.

So, something like this should work:

ToString="java.extended.properties=-XX\:MaxPermSize\=128m -XX:CompileCommand=exclude,com/tibco/repo/RVRepoProcessBridge,handleServerHeartbeat"

sed -i "s@.*java.extended.properties.*@$ToString@g" "$ToFile"