@guitarcenter, you might also want to email or call them and let them know about what happened. If they send out your application without the photo to Nepal (not knowing they sent you back your photo), it will be delayed by months as you will get the rejection from Nepal after several months. Contact them to make sure they will include your photo in your application before sending out.
I believe the reason they ask you to send back passport in 3 months is they want to put the "Cancelled" stamp on your old one before mailing you the new one.