It's not a 1 hour demo but a 1 hour time limited session where you can play the entire game. The twitter denials by MS execs could refer to people branding it as a 'demo', which it's not.
Otherwise, you'd have to wonder - MS are on the one hand trying to reduce the value of used games (I know this was one of their priorities for the ecosystem of the new box) but on the other hand they are making it far easier for people to freeload?
Think about it, if 10 people can share their entire game libraries with each other so easily, that's a lot more people playing a game without paying for it than you would see with lending or second hand sales.
Eg. I can see all the games my friends have and instantly play them, rather than having to remember to get it off them etc. Plus people can easily see if their friends have a game they want before they buy it themselves.
And rather than waiting for other friends to finish playing your friend's game so you can borrow it, a group of friends can all play the same game during the same time period, albeit asynchronously.
So I think it's pretty unlikely that MS would serve up this kind of 'all you can eat' game sharing buffet for gamers.
That's why I believe Microsoft didn't explain this very clearly, because it was totally in flux. I'm also of the opinion that they weren't going to really try to eliminate all sharing, but get rid of the $54.99 used game sitting on Gamestops shelves one week after release. Besides, 10 people really just seems way too outlandish if that's how it really was going to work.
I'd expect a new system to be a buddy system. You get to share full games with 1 friend who has been on your list for 30 days. Sure, sharing already usually happens anyway with disc based games, but it would prevent massive sharing with a bunch of people while still enticing you to buy digitally. Plus, for multiplayer games, it really wouldn't matter since you probably wouldn't be able to play at the same time.
Anyway, I just want more rights for digital copies since I have no plans on buying physical discs in the future.