Can FM easily sync whole text blocks (without having to create 20 files for each block?)

It really depends on how you're going to use the content.

If, like us, the product-specific content could potentially be used later in other manuals, you're better off creating the product-specific content as separate FM documents, then use them as text inserts where needed. Or, you could do it the other way around, with the baseline text inserted into each product's manual as a text insert - if you're creating a separate manual for each product. (That's the beauty of FrameMaker - there are numerous options. It's a matter of what works best for your requirements.)

On the other hand, if that is never going to be the case, frameexport and 4everJang's suggestion of using Conditional Text is the better option. I would strongly recommend putting the time and effort into 'designing' your Conditional Text Tags, how they will be applied to your content, testing every possible combination of the Conditional Text Tags to ensure the correct content is shown. They should also be consistent across all your documents. (Conditional Tags are case sensitive, so Prod2 and prod2 are not the same.) It will save you a lot of headache later one if you need to change the way you used them. (Lesson learned from experience.) You can use Expressions to specify the conditions under which Conditional Text should be shown/hidden, but I've found it to become cumbersome and convoluted fairly quickly and hard to maintain. To keep our Conditional Text Tags consistent, we created and maintain a Master Conditional Text Tags Template - an empty FM document - that contains all the Conditional Text Tags we use in our documents. We then use the Import Formats option to import the Conditional Text Settings into new documents, then show/hide the appropriate content.

You don't need insets at all. And what you intend to do with paragraph styles on the reference pages is completely unclear to me. That will not be a good strategy for anything you would want to do.

Check out the perfect options FrameMaker has for conditional text. Open the Conditional Tags panel and apply conditions for product 1, 2 or 3 to the parts that you are thinking of pushing into text insets. You can even apply multiple tags to the same content (e.g. a paragraph that is valid for both product 2 and 3). Then use the Show/Hide Conditional Text panel to show and hide the parts as required.

If you produce web-based output you can even give control over visibility of conditional content to the user: they simply click a set of check boxes to show or hide content for specific products.

I wonder if it is better to flip it around and have a single manual for all three products. You would have your baseline text as native text in the manual. Then you would use Conditional Text for the information that is specific to each product.