I got that error as well crashed. Got frustrated with trying to fix it, and finally just downgraded back down to the previous version of sed. That worked just fine and all is well now.

Also, while kanotix really is much smoother with upgrades than knoppix, it's still not as smooth as installing a fresh debian install (and you should consider trying that sometime). But once you fix few simple issues on the first upgrade things generally go very smoothly with kanotix.

This sed issue shouldn't be taken as representative of kanotix upgrades...this is the first time I've had anything that was really the least bit frustrating happen with a kanotix upgrade. Previously it was just a package here and there needing to overwrite files.