Inuyasha being my second favorite anime (OP first!), I will enjoy this one.
This can be a very tough decision. Sesshomaru's whip has really long range and can easily cut through anything, so Luffy can get several cuts against him. Moving around fast won't help him though, as Luffy has proven to be able to hit fast moving people (Kuro and Bellamy). It may most likely end up as a tie, but even if Luffy is gaining the upper hand, this will cause Sesshomaru to trigger his true form.
Sesshomaru's demon form is gigantic and powerful, but because of this, it makes him an easier target. Luffy has to watch out for his poison attacks. This aura can easily dissolve whatever it touches. Since Sesshomaru is bigger and a little bit slower than his 'human' form, Luffy should be able to hit him easier than before, but the large body will also make him resist more attacks.
So in all, it is very hard to decide who will win. Sesshomaru is a demon, so he cannot die or get injured so easily. Perhaps the easiest way for Luffy to win is to enter Gear 2 form. That way he will PWN Sesshomaru for sure.