I guess calling the car a demo means it was never titled. I wouldn't buy the car unless the damaged was fixed. You didn't say where you are located as far as rustproofing is concerned. Oil-Dexos labeled-what ever brand. Wax depends.
I'm getting a vibe that you may want to take someone who has some experience buying a vehicle and the negotiation process involved.
No. Demos are always titled with the dealer. A lot of dealer agreements actually require a certain number of demo cars per year is often in that agreement.
My first car I bought I test drove their demo. The sales guy said that they preferred to do it that way rather than take out too many new cars. But it was a 1995 Acura Integra GS-R back when Acura dealers basically only had Integras, Legends, and NSX (which wasn't up for a test drive). I guess if someone wanted to test drive an automatic Integra they might have pulled out a car in their inventory and try to keep the mileage down. The way the sales guy told it, they rack up about 5000 miles and sell it where they can write off the loss in value.
But as far as the damage goes, that's always negotiable. That's probably also something they can use as a tax write-off.