Actually watched the full keynote. Of the 22 minute long video, he spent maybe a minute talking about it. It was part of an overall spiel about plans and the nature of games. Thinking of things like Achievements, when you see a friend with one, your head starts going, and you start thinking "hey, he has that, I want that, I can get it", and so you make plans to get it. And then you start to act on it. And so on.
Where demos came in - he provided a chart showing Xbox360 game unit sales for the first six months (Data courtesy of EEDAR). The bottom line was no demo or trailer. Second lowest was demo only. The line after that was demo and trailer. Then, roughly twice as high, was the line for trailer only.
His rationale came down to the Plan idea. The trailer plants the idea in your head that you want to play it, and so you have a plan in your head to play it. A demo allows a user to sate that plan, and so they no longer plan to play the game. Trailer only creates the plan, and forces them to buy the game if they want to act on their plan.
Hey thanks for the info. When taken in that context I can see his point more clearly. I just went back to that article. It seems it was edited or something because there are now videos and what seems to be more info there. Strange.