There's been 20 or so bans from demos so they're not entirely useless (some of the bans can be viewed in the UT3 admin section).  20 bans isn't a lot compared to the amount of space required to keep demos but it's a pretty good chunk of our bans.  If someone says someone is speedhacking or aimbotting and no one is around to verify this- I would use demos.  Demos- although there are flaws -CAN be used to find out if someone is hacking.  What you guys are looking at is people like Discordant or Unreal.Inc and demos will not satisfy you.

The server has been ran with and without demos.  I haven't seen any difference in complaints.  I've also tested with profiling mutators and the server doesn't behave any different with or without demos.  I've heard people complain that demos lag servers but it certainly isn't the case for us.  The bulk of the demo code for UT3 is probably native.  The biggest impact demos have is eating space on the machine.