What is wrong with my string substitution using sed on Mac OS X?

Three problems with your command:

1. You’re missing the terminating /.
2. You can’t use / as delimiter anyway, because this character occurs in the string you’re trying to replace/substitute. You should use a different character, such as a pipe character, as delimiter.
3. In the version (BSD) of sed that ships with Mac OS X, the -i flag expects a mandatory <extension> argument, which your command is missing. An empty string ("") should follow the -i flag if you want to edit the file in-place with this version of sed.

In summary, try

sudo sed -i "" "s|#Banner none|Banner /etc/sshd_banner|" /etc/sshd_config