When the Fatboy Mutator mod for the Unreal Tournament demo surfaced this week (story), we were worried Epic didn't want modifications to the demo published, so we contacted Mark Rein, who said that new mutators were okay, it was add-on maps they were prohibiting. Apparently we were not the only ones confused by this, as a thread called UT demo mods on Mod Central's Unreal Forums has inspired a reply by epic Programmer Tim Sweeney explaining that this indeed represented a change in policy:

FYI, we had a big old argument about this topic here. That was the reason for the initial ambiguity. In the end we concluded that allowing mods for the demo is a good thing.

-Tim