No demo downloads because of the memory constraints. Even the "SD Card Solution" (which is more a farce each passing day) doesn't solve it, since you'd still have to copy it to internal memory, and I imagine even the lightest demos of retail games would clock in at 256 MB or more, which is already half the available space. A hard drive is really the only way to pull this off outside of streaming demos, and let's face it - their online infrastructure simply won't be able to handle that.
No demo discs because they are stubborn and set in their ways, and would most likely view it as a waste of time and resources being devoted to a making a demo instead of just finishing the game. Further, their answer to this is the Nintendo Channel, since you'll get videos and whatnot there. If anyone is going to make them, it would have to be from a third party, and they'd have to mastermind the whole thing. I.e., Konami would have to do it themselves - Nintendo wants no part in it. This might change as digital distribution becomes more mainstream, but that won't be for years at the earliest.
There's another psychological reasoning at play, in that Nintendo assumes people who follow the industry and post on forums and so forth are already educated on what they want to play, and thus demos aren't really required. The other side who buys based on title/coverart/price/other-insignificant-criteria isn't going to pay attention to demos outside of the ones available in stores.
Please note I am not defending these decisions - I am explaining them. There is a difference.
Also please let's not let this thread devolve into another stupid flamefest. It hasn't yet, but the universe is a cruel mistress and constantly lowers my standards even when I was sure they were at rock bottom. I know that's really difficult for CAG to not do, so feel free to surprise me.