Ohhhh! That's the 2nd time in as many days I've heard about this. It's a bit of a novel conspiracy theory. Last time, it was that people were being PAID to wreck. A commission-based wrecking/marketing strategy.. some people have some strange ideas!
The last conspiracy theory was that aliens had landed.. that turned out to be true, though! Just look at biggie's online chart.
It's a discussion that crops up frequently on the forum, and the lasting impression I'm left with is that LFS travels really well through word of mouth - which itself is testimony to the standard of the program, I think.
Everyone seems to have a different idea of what should and shouldn't be in the demo; how it's managed and how it functions, and some even think there shouldn't be a demo at all... we'll never get everyone to agree on the subject.
The crux of your last point, I think, boils down to the balance between well-administered servers where poor behaviour always results in kicks or bans, versus the fact that anyone can host a demo server with a home broadband connection - even planks, twits, twonks and so on. I think it comes down to a community-related problem, which means it'll be a community-based solution, when it comes