What happens is that when people with non-Japanese Xbox Live Gamertags try to play the demo—perhaps they downloaded it?—XBL, in the words of WorthPlaying, “actively corrupts the demo code rendering it completely unplayable – even in offline mode.” That raised a whole bunch of how-much-power-does-Microsoft-have-over-my-360 questions.
To these allegations, Microsoft has said the following:
By putting measures in place to ensure it could only be downloaded in Japan the demo version was effectively reset, meaning that it is only supported by LIVE in the correct region. We look forward to being able to offer our gamers a chance to experience a US demo of this eagerly anticipated title soon
Now, I don’t see how Microsoft can prevent your playing of the demo if you never connect to Xbox Live.