What are you trying to achieve with the demo? If you're looking for feedback on something specific, you only need enough to get across whatever that specific is. If you're trying to drum up _funding_ you probably want to focus tightly on the cool bits, and that may or may not bear any resemblance to the beginning of the game.
If you're just generally trying to get people interested, you want enough in there for people to feel like they haven't wasted their time downloading it... but many people won't bother downloading demos of WIPs at all because they don't want to get involved in a project that might not finish, especially since the demo is obviously incomplete and will have to be deleted/replaced.
It might be more entertaining to release a trailer/teaser that introduces the characters but is NOT a chunk of the full game project, it's something that stands alone. However, that's a lot of extra work.
If you really just want to show your biggest fans how much progress you've made so far, release it whenever.
