There are multiple things wrong in the script but instead of trying to correct your script I've looked what textExpander tells me to do. On the help section about textExpander on smilesoftware.com site they say:
The script executes in the context of the TextExpander application. The script can perform various actions, but the snippet will expand to whatever text is returned.
When looking at the your goal you simply need to coerce the returned alias from the choose file command into a string and return that. So a single line like below should be enough to use to return an HFS path to a file
return choose file with prompt "Please select a file." as string
if you want to return the file path as POSIX Path you only need this:
return POSIX path of (choose file with prompt "Please select a file.")
If you want the path to be prefixed with "path:" like in your example code:
return "path:" & (choose file with prompt "Please select a file.")
NOTE: there is an implicit coerce of the choose file results, no explicit coercion is needed.
EDIT: I've downloaded textExpander myself and it seems that showing dialog in the context of textExpander will behave wrong. So what I did was looking up the front most application and showing the dialog there, it's also better looking. Then I tell that application explicitly to show the choose file prompt and return the result of the choose file prompt. Here is the code:
tell application "System Events"
set applicationName to (name of every process whose frontmost is true) as string
end tell
using terms from application "AppleScript Editor"
tell application applicationName
set expansionString to (choose file "Please select a file.") as string
end tell
end using terms from
return expansionString