Microsoft has the server infrastructure but it doesn't mean they can serve up content liberally. When demoes are first released, it will cause (big and small) spikes in traffic. Why is it a non-peak service automatically ?
While I don't work for MS and I wasn't at a primary content provider (qualifiers) my understanding of the business end of data centers I worked with/for is we were paying $x for OC.xxx connections. It was the same deal if you go with a network facillity and order a 10mb unmetered line versus a 100mb line with a monthly transfer cap. Essentially MS as owning and leasing datacenter space I truly doubt they are paying much for the bandwidth but are primarily footing the bill for the availability.
So now as MS you have some buildings with OC128s or whatever fiber they have and yeah, during a peak load (e.g. a big name demo like CoD4MW) you really saturate that service. But in between these big demos you have big lulls where you WANT to utilize your bandwidth--and it takes a LOT of 200MB demos to reach the type of saturation of a big demo like a CoD4 Beta w/ all the online play (hosting audio, parties, messaging, matchmaking backend, etc on top of downloads).
The "sweet" part is if everyone is downloading the CoD4MW beta the % of people downloading other stuff goes down. But that is besides the point--MS has really increased their peak capacity. The number of movies you can download, game videos, and various other services is pretty staggering. They now have IGN videos, very frequently Xbox Insider and MM episodes, etc. Most XBLA demos are smaller than some of the feature videos. If MS needed to cut fat there is a TON of video content to cut.
But as I pointed out above they really don't need to. Unlike the "fat" the games are a) marketing and market appeal b) build inroads with devs and foster new gaming experiences, unique ones if theirs is a "safer" route and c) MS actually makes MONEY on these. They make a cut on Live points and they make a cut on every game sold.
The infrastructure is there for this purpose and it has proven to be pretty popular. This summer saw some great gaming experiences on XBLA. As long as devs see it as an appealing platform that they can make money on and I as a consumer get gaes I want it is a win-win. Per MS if they had to make "cuts" to offer more Ded Servers (which is NOT a universal solution so I don't know why you continue to go back to it... how did Ded Servers make BF1943 better than Halo 3? It DIDN'T! But you wouldn't know that) the fat would be movie streaming, IGN videos, insider videos, MM, game perview vids, etc.
Per ded servers it is ironic: PC games often have ded servers and yet PC games cost less ($50 to $60 at launch, PC has more piracy and costs go down quicker as well). Consoles sell more titles and have a lower online-to-offline ratio if my experience is anything. Finally, MS allows ded servers -- MS isn't going to host servers for other people's games. If EA wants servers for BF1943 they need to do it on their own. The only time MS can be blamed for NOT having ded servers is when their published games don't have them. Halo 3 was fine with the design w/o servers sans some lagginess on the Sidewinder remake. FM2 was fine with 8 cars which appears to be more of an engine limitation (collisions with 2 player splitscreen was pretty rough at times) and my online experience with FM2 was very good, but then again I have a solid connection.
At the end of the day your "cut demos to get ded servers" doesn't relate to the complexities of the market.
It is Sony FUD points really. The problem from MS, of course, is they charge $3-5/mo for online play and the sunk cost really is going toward the overall platform growth, including branching out to media. How quickly we forget how MS was the first console with DLC TV and movies, Netfix support, etc. Those party server, audio chat and messaging across all games, leaderboard, matchmaking, video chat, and general upkeep along with new features and services along with the marketplace have a cost.
MS just chooses to take something desirable, online gaming, and subsidizes the entire platform with it.
The problem is, and if you want to argue quite this part, MS isn't on the losing end on the demos. Infrastructure is already there, they make money on the MS Points, they get a cut of the games sold, it provides compelling/unique content, builds dev relations, on and on. The only reason you are having a cow about "free demos" is because Sony's stance is to charge devs up front (more initial risk) instead of MS putting the risk on the backend. The cost of instant 1080p streaming, first to market with DLC movies and TV, and improving gaming (coms, parties, etc) features that 3 years later Sony STILL struggles with, well, all that costs $$$$$$. If the product wasn't desirable people wouldn't pay for it, but as much as I don't like to, I do.
Anyhow, cutting free demos doesn't magically make ded servers pop out of thin air. And if the goal is to build an online library keeping the cost of entry low is a sound business approach.
As for the rest of your post, I have already said that instead of spending those subscription $$$ on demo bandwidth, they can spend it on something more worthwhile (e.g., contribute towards dedicated server infrastructure).
And demos of games aren't worth while? As I said before the Live Arcade setup has got me to buy about a Dozen games. Ask NavNuc--I said I would probably never buy a XBLA game last summer. The ability to DL demos has snagged me in as a consumer and I am sure those purchases have netted MS a nice penny. if I have spent $100 on XBLA (a little more due to some movie rentals here or there about once a month) and MS nets $30 that is a LOT of bandwidth I would need to soak up to hurt MS's bottomline. They have certainly profited from me above and beyond advertising and the benefit to the nebulous "platform."
And you continue to evade the obvious: 360 games do have ded servers and it isn't MS position to fund ded servers for non-MS pubbed games.
For Sony's PSN policy, I believe they would double the marketing budget of an exclusive PSN game to help market it (e.g., spend on demo bandwidth if it's effective for that game).
And MS just says, "Hey guys, we have the servers, we have the bandwidth, we want all you indie folks and small devs to build on our platform. No risk up front."
There is a reason the PC is such a rich source of new game designs and ideas. Of course maybe all those massive Flash sites should be charging the devs to have their games there... or maybe advertising really does offset such... if a small mom and pop website can stay afloat I am sure those fancy MBAs can figure out how to leverage devs building up your platform with content.
There are PSN games that disable the sharing feature. So it should be well within their control. I assume the developers can talk to Sony about it ?
Is it enabled by default?
When was the ability to disable made available?
Are there work arounds?
Is it readily transparent to developers that people are distributing their games?
Is there a penalty for disabling this feature?
Do you have to ask Sony to disable it?
Not a lot of answers for a feature that allows consumers to steal content.