Okay, I just played the demo, and I'd say so far it's definitely on the right track.
It's definitely a step up from most fangame demos I've seen.
HOWEVER, I encountered some things that could use polishing, IMO.
1. I encountered a bug that caused the Octorock's pellets to go right through me without damaging me, and for him to just keep bombarding me with pellets.
Basically, I just stood there, and the Octorock was standing facing me and shooting pellet after pellet...not randomly like he normally would. He was, at regular intervals of about half a second, shooting them without stopping or turning to leave. And the pellets went through without harming me...but my shield would not deflect them back. It was only corrected once I took a few steps away from where I had been standing, I think it was once I got out of the path of where the pellets where coming from. Then the Octorock's behavior instantly went back to normal, and the collision with the pellets worked normally again. I have NO idea what triggered it. But I had only been playing the game for a few minutes when it happened. I had gone to Castle Town and come back, and it happened on the way back. So it's probably not something that's hard to trigger again, since it happened after only a few minutes of being around the Octorocks. I haven't tried to trigger it again, though.
2. The way you worked out picking things up, it doesn't pick it up unless you are lined up just right (in fact, sometimes it rolls). The same goes for getting into a bed and several other actions. Maybe it's just my opinion, but I think that it would play more smoothly if you didn't have to be lined up quite as well to perform context sensitive actions. I often found I tried to perform one, but then had to stop and move over a few steps and try it again. This isn't good, especially if you have to do some of these things on the fly, like picking up a vase to use against an enemy.
EDIT: Oh, I see you've already been made aware of this...nevermind. Plus, I think what I posted was innaccurate. I don't think the problem of rolling when you mean to perform a context sensitive action applies to picking things up. I guess I need to go back and check, to make sure what I said was accurate.