I downloaded the demo build 205 sometime ago and I installed and it simply went to desktop with no error message either. I never solved it and pondered it being an XP issue since I use XP Pro. I never had the time to worry about it. Oddly I just went to the website and see no demo listed (?).
After reading your post I re-installed the demo [I had it archived] and ran it. Surprisingly I had no problem. So what has changed since I tried the demo before and now? Well, I installed XP SP1 and I updated my nVidia GF3 drivers. Personally, I think it was the nVidia drivers.
I'm using the Det4 40.72 betas. Give it a try.
PIII 750, 768 MB PC100 SDRAM, Visiontek GF3, Win XP Pro SP1.
Just for the heck of it try using compatibility mode for Windows 2000 and the latest Detonator drivers and see if it works without SP1. If it still doesn't work then I think it's something buried in SP1.