I read somewhere that demos don't help sales much or in some cases hurt sales for xbox live games. People would try the demo, and then not buy the game. If the demo didn't exist, more people will end up buying it.
That may be possible I suppose, but only if your game turns out to be bad.
There are a few games which I got demos for before purchasing: Rise of Nations: Rise of Legends, CoD4, Warhammer 40k and Crysis.
For all games I learnt that my computer was capable of running them at a satisfactory setting. The gameplay was fun and it seemed the games had just what I expected and wanted.
I will never forget those demos, which influenced me to purchase the complete games.