Actually, technically, the output of this is wrong, as the lines are completely meaningless. Compare the output of this to the output of the "tree" command (i installed it with darwinports, it's fast!) for any directory a few layers deep and you'll see that the "left continuation lines" are in multiple layers and actually indicate everything that is still in the same folder (as opposed to this one-liner where they are just decorative). It's actually tough to keep track of that kind of thing using a one-liner.

---
In /dev/null, no one can hear you scream

what do you mean the lines are wrong? Every "--" represents a new level. All that it would take to make the output about the same would be to replace strings of more than two --'s with vertical pipe symbols instead of hyphens. This is hardly difficult... just pipe the result fo this back into sed, or modify the original a bit.