For long time gnu sed port had this error, or issue, if you will.
The --in-place (-i) option was not working. Now it does.

You will need this modified sed (it is called ‘ssed’):

http://sed.sourceforge.net/grabbag/ssed/

-i works now: ssed -i.backup -e "s/REPLACE_ME/REPLACED YOU/" input.txt

@echo Before:
@more input.txt
@ssed  -i.backup -e "s/__REPLACE_ME__/REPLACED YOU/" input.txt
@echo After:
@more input.txt
@del  input.backup

 
I couldn’t get ssed not to create the input.backup file. So I add an extra line to delete it: @del input.backup.
Backup file must be removed, or you might get: ssed: cannot rename input.txt: File exists second time you try the same ssed command.
I used ssed 3.62.

Have fun!