Song in Season 3 Episode 23 ('promises promises')...Does anyone know?!

The opposite. Sargent's song is on the original soundtrack which was released during the series' run in 1996. The series began in 1994. Sargent's song was from Promises Promises.

The DVD's were released years and years after the CD, so I'm not really of any help to you on the track, other than the Sargent track being on the original airing in 1996. Here are the three credited tracks from Promises Promises:

Without Letting Go by Laurie Sargent
Crash Into Me by Dave Matthews Band
Love Minus Zero-No Limit by Bob Dylan

Let's see if we can define the scene you're talking about? Is this the moment?

Bailey and Sarah are in Sarah's room listening to music (song playing in background). Sarah is on the bed and Bailey is on the floor looking through CDs. He asks her, "Is this my Talking Heads?" She is spaced out, but replies that yeah, he left it here when they were going out. He asks about Drew, and whether or not it's serious. She says she doesn't know, it was only going to be they're second date. He says he just asked because she never mentioned him, and apologizes if he screwed it up for her. She says Drew was very understanding and they're going to get together this weekend. She stretches and he realizes he's keeping her up and gets up to leave. She says it's not a big deal, just school tomorrow, and asks him how he's doing. "Better," he says, "better I guess." He says that this night was good for him, helped him keep his mind off things. He tells her that being with her is what helps, and takes her hand and starts rubbing it. She pulls her hand away and tells him to stop. He apologizes and blames it on old habit. She says things are different now. He says he know, and she's dating someone now, and that's great. She reminds him that he's dating someone too. She says she'll help him, but that he kinda has to learn to help himself too. She says he's doing great so far, but that she thinks he needs to make some serious changes, and get away from the things that make him want to drink. He takes her advice to heart. "Everything," he says. "Yeah, pretty much," she answers.

Sarah and Bailey are moving Bailey's boxes into the Salingers' house. She's counting stairs. They're done. He says he guesses he's going to owe her for this. "Yeah," she says, "pretty much for the rest of your life." They laugh. He says he could start tonight by taking her out to dinner anywhere she wants, but she says that's really sweet, but she can't, she's going out with Drew. He says, yeah, sure. She gets up and says, "So I'll see you?" "Yeah, I'll see you," he returns. She starts to leave, and he stops her, and then realizes he doesn't know what to say. She smiles and says, "Don't mention it," and walks out of the room. He's left sitting on a bare mattress alone. (Crash by Dave Matthews Band starts playing and continues through next scene.)