Screaming Penguin - Source Does Matter

I just noticed my syntax is a bit awkward there, rather than "m4 sendmail.cf < sendmail.mc" (which should still work, even though it's confusing), try something like the following:

m4 sendmail.mc > sendmail.new.cf

And then see if the "new" file is created. Since there are no errors I assume it's not perms, etc. But just try to see if you can make a new file, rather than overwriting the existing file. Then, if that works, try renaming both the old and new and restarting sendmail.