diff -urpN busybox-1.17.1/editors/sed.c busybox-1.17.1-sed/editors/sed.c
--- busybox-1.17.1/editors/sed.c	2010-07-06 04:25:53.000000000 +0200
+++ busybox-1.17.1-sed/editors/sed.c	2010-08-17 02:05:27.000000000 +0200
@@ -61,6 +61,10 @@
 #include "libbb.h"
 #include "xregex.h"
 
+enum {
+	OPT_in_place = 1 << 0,
+};
+
 /* Each sed command turns into one of these structures. */
 typedef struct sed_cmd_s {
 	/* Ordered by alignment requirements: currently 36 bytes on x86 */
@@ -938,8 +942,11 @@ static void process_files(void)
 
 		if (matched) {
 			/* once matched, "n,xxx" range is dead, disabling it */
-			if (sed_cmd->beg_line > 0)
+			if (sed_cmd->beg_line > 0
+			 && !(option_mask32 & OPT_in_place) /* but not for -i */
+			) {
 				sed_cmd->beg_line = -2;
+			}
 			sed_cmd->in_match = !(
 				/* has the ending line come, or is this a single address command? */
 				(sed_cmd->end_line ?
@@ -985,6 +992,8 @@ static void process_files(void)
 		}
 
 		/* actual sedding */
+		//bb_error_msg("pattern_space:'%s' next_line:'%s' cmd:%c",
+		//pattern_space, next_line, sed_cmd->cmd);
 		switch (sed_cmd->cmd) {
 
 		/* Print line number */
@@ -1111,10 +1120,16 @@ static void process_files(void)
 		{
 			int len;
 			/* If no next line, jump to end of script and exit. */
+			/* http://www.gnu.org/software/sed/manual/sed.html:
+			 * "Most versions of sed exit without printing anything
+			 * when the N command is issued on the last line of
+			 * a file. GNU sed prints pattern space before exiting
+			 * unless of course the -n command switch has been
+			 * specified. This choice is by design."
+			 */
 			if (next_line == NULL) {
-				free(next_line);
-				next_line = NULL;
-				goto discard_line;
+				//goto discard_line;
+				goto discard_commands; /* GNU behavior */
 			}
 			/* Append next_line, read new next_line. */
 			len = strlen(pattern_space);
@@ -1270,9 +1285,6 @@ static void add_cmd_block(char *cmdstr)
 int sed_main(int argc, char **argv) MAIN_EXTERNALLY_VISIBLE;
 int sed_main(int argc UNUSED_PARAM, char **argv)
 {
-	enum {
-		OPT_in_place = 1 << 0,
-	};
 	unsigned opt;
 	llist_t *opt_e, *opt_f;
 	int status = EXIT_SUCCESS;
@@ -1292,6 +1304,7 @@ int sed_main(int argc UNUSED_PARAM, char
 	opt_e = opt_f = NULL;
 	opt_complementary = "e::f::" /* can occur multiple times */
 	                    "nn"; /* count -n */
+	/* -i must be first, to match OPT_in_place definition */
 	opt = getopt32(argv, "irne:f:", &opt_e, &opt_f,
 			    &G.be_quiet); /* counter for -n */
 	//argc -= optind;
diff -urpN busybox-1.17.1/testsuite/sed.tests busybox-1.17.1-sed/testsuite/sed.tests
--- busybox-1.17.1/testsuite/sed.tests	2010-07-06 04:25:54.000000000 +0200
+++ busybox-1.17.1-sed/testsuite/sed.tests	2010-08-17 02:05:27.000000000 +0200
@@ -80,10 +80,18 @@ test x"$SKIP_KNOWN_BUGS" = x"" && {
 # Query: how does this interact with no newline at EOF?
 testing "sed n (flushes pattern space, terminates early)" "sed -e 'n;p'" \
 	"a\nb\nb\nc\n" "" "a\nb\nc\n"
-# N does _not_ flush pattern space, therefore c is still in there @ script end.
-testing "sed N (doesn't flush pattern space when terminating)" "sed -e 'N;p'" \
-	"a\nb\na\nb\nc\n" "" "a\nb\nc\n"
 }
+# non-GNU sed: N does _not_ flush pattern space, therefore c is eaten @ script end
+# GNU sed: N flushes pattern space, therefore c is printed too @ script end
+testing "sed N (flushes pattern space (GNU behavior))" "sed -e 'N;p'" \
+	"a\nb\na\nb\nc\n" "" "a\nb\nc\n"
+
+testing "sed N test2" "sed ':a;N;s/\n/ /;ta'" \
+	"a b c\n" "" "a\nb\nc\n"
+
+testing "sed N test3" "sed 'N;s/\n/ /'" \
+	"a b\nc\n" "" "a\nb\nc\n"
+
 testing "sed address match newline" 'sed "/b/N;/b\\nc/i woo"' \
 	"a\nwoo\nb\nc\nd\n" "" "a\nb\nc\nd\n"
 
@@ -270,11 +278,16 @@ testing "sed a cmd ended by double backs
 	| two \\
 '
 
-# fisrt three lines are deleted; 4th line is matched and printed by "2,3" and by "4" ranges
+# first three lines are deleted; 4th line is matched and printed by "2,3" and by "4" ranges
 testing "sed with N skipping lines past ranges on next cmds" \
 	"sed -n '1{N;N;d};1p;2,3p;3p;4p'" \
 	"4\n4\n" "" "1\n2\n3\n4\n"
 
+testing "sed -i with address modifies all files, not only first" \
+	"cp input input2; sed -i -e '1s/foo/bar/' input input2 && cat input input2; rm input2" \
+	"bar\nbar\n" "foo\n" ""
+
+
 # testing "description" "arguments" "result" "infile" "stdin"
 
 exit $FAILCOUNT