This obviously gets googled often as it comes up as one of the autocompletes.
The answers that are returned are:
1) Use perl
2) Newer sed supports this option (i or I) but not older.
Links, which both have Use perl & update sed suggestions:
http://hintsforums.macworld.com/archive/index.php/t-19780.html
http://stackoverflow.com/questions/4412945/case-insensitive-search-replace-with-sed
