From the article: "Once the update occurs, Xbox 360 owners will be able to download Xbox Live Arcade games, Xbox Live Indie games, Games on Demand, DLC and Title Updates to the storage device. "USB storage devices may, however, have far greater memory capacity than MUs (at the date of writing, the largest MU is 512 MB), and may therefore support previously infeasible operations-such as installation of a full disc-based title." That's right, you can also store disc-based games to the USB device; however, it will require the disc to be in the tray for authentication, identical to the current functionality."
Notice that it didn't mention downloading GAME DEMOS. Was it an unintentional omission or will it not be able to do it at all?
Good news nonetheless, OP.