If you are on a OS X, this probably has nothing to do with the sed command. On the OSX version of sed, the -i option expects an extension argument so your command is actually parsed as the extension argument and the file path is interpreted as the command code.
Try adding the -e argument explicitly and giving '' as argument to -i:
find ./ -type f -exec sed -i '' -e "s/192.168.20.1/new.domain.com/" {} \;
See this.
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