First, -i option was not supported, so the above sed -i "N c $var " datafile is not portable.
Second, even if the -i option is not provided, using sed -i "N c[\] $var" datafile, still it cannot work.
The solution might be,
sed "N c\\
$var" datafile
which I tested under Solaris.

John, Hong

p.s.
sed "N s/.*/$var/" datafile also works out.