Recent pseudo breaks 'install ... && sed -i' sequences within do_install() (see bug #6580).  Unfortunately, this is done in a lot of recipes (base-files, base-passwd, python, glib-2.0, ...).

There are various fixes (in order of my preference):

1. modify 'pseudo' to ignore 'selinux.*' xattrs for now

2. modify 'pseudo' to emulate SELinux behavior

3. change affected recipes to do the 'sed -i' in do_configure() or do_compile()

4. revert to a previous 'pseudo' version

5. create a 'sed' wrapper in a preferred $PATH which catches 'sed -i' and executes it in a 'pseudo' friendly way

6. change 'install' to skip setting of SELinux context; IMO this is not a practical solution because 'install' comes from the linux distribution. ditto for 'sed'

7. document that OE builds must be done as unconfined SELinux user resp. with disabled SELinux.  IMO, this would be a very bad fix because it lowers security significantly.