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I've created a custom page display posts for a specific category. But the pagination doesn't work. When you click on "next" the link looks like this: http://localhost:8080/meles/page/2/ but it's still displaying the same posts as on the first page. Can anybody please help???

My code looks like this:
<?php
/*
Template Name: PageOfPosts
*/

get_header(); ?>

<div id="page-content" class="narrowcolumn">

<?php

$cat = 1;
$paged = (get_query_var('paged')) ? get_query_var('paged') : 1;
$post_per_page = 2; // -1 shows all posts
//$do_not_show_stickies = 1; // 0 to show stickies
$args=array(
'category__in' => array($cat),
'orderby' => 'date',
'order' => 'DESC',
'paged' => $paged,
'showposts' => $post_per_page
//'caller_get_posts' => $do_not_show_stickies
);
$temp = $wp_query; // assign orginal query to temp variable for later use
$wp_query = null;
$wp_query = new WP_Query($args);

if( have_posts() ) :
while ($wp_query->have_posts()) : $wp_query->the_post(); ?>
<div id="post-<?php the_ID(); ?>" class="homepage-posts">
<h2>" rel="bookmark" title="Permanent Link to <?php the_title_attribute(); ?>"><?php the_title(); ?></h2>

<?php
$images = get_children( array( 'post_parent' => $post->ID, 'post_type' => 'attachment', 'post_mime_type' => 'image', 'orderby' => 'menu_order', 'order' => 'ASC', 'numberposts' => 999 ) );
if ( $images ) :
$total_images = count( $images );
$image = array_shift( $images );
$image_img_tag = wp_get_attachment_image( $image->ID, 'thumbnail' );
?>
<div class="homepage-thumb">
"><?php echo $image_img_tag; ?>
</div><!-- .gallery-thumb -->
<div class="homepage-summary">
<?php the_excerpt( __( 'Read more <span class="meta-nav">→</span>', 'twentyten' ) ); ?>
<?php wp_link_pages( array( 'before' => '<div class="page-link">' . __( 'Pages:', 'twentyten' ), 'after' => '</div>' ) ); ?>
</div><!-- .entry-content -->
<?php else : ?>
<div class="homepage-summary-full">
<?php the_excerpt( __( 'Read more <span class="meta-nav">→</span>', 'twentyten' ) ); ?>
<?php wp_link_pages( array( 'before' => '<div class="page-link">' . __( 'Pages:', 'twentyten' ), 'after' => '</div>' ) ); ?>
</div><!-- .entry-content -->
<?php endif; ?>

</div>
<?php endwhile; ?>

<div class="navigation">
<div class="alignright"><?php previous_posts_link('Newer Entries »') ?></div>
<div class="alignleft"><?php next_posts_link('« Older Entries') ?></div>

</div>
<?php else : ?>

<h2 class="center">Not Found</h2>
<p class="center">Sorry, but you are looking for something that isn't here.</p>
<?php get_search_form(); ?>

<?php endif;

$wp_query = $temp; //reset back to original query

?>

</div>

<?php get_sidebar(); ?>

<?php get_footer(); ?>