yea, that doesn't work. I've got the solution though if you want ot see it.
declare @sql nvarchar(1000)
declare @testInt int
declare @ParmDefinition nvarchar(100)
--set @testInt =0
set @sql = 'select @testInt =1'
set @ParmDefinition = '@testInt int out'
exec sp_executesql @sql,@ParmDefinition,@testInt out
select @testInt