I suggest to consider the following option:

1) Use the SDK to show the demo.
2) Record the X11 data with something like pyrecordmydesktop.

This creates the best quality of video without depending on a steady camera with light influence and mirroring and fingers/stylus in the way and so on.

You could even embed this video inside a picture of a N8x0. Heck, you could even let the user specify which device they have and this is used to show the device background picture (for example, a N800 with embedded Flash video).

The issue is here that some hacks require hardware fiddling (pressing hardware button, for example). For this I don't have a solution. But for purely software related things this would work well.

You could also change your mouse pointer icon to a stylus or a finger.

Omiting any text is not good IMO. You could use voice as feedback with the video, but some people are not native English speakers. Give them, besides the voice, also the text (transcript) of the sound. This is also useful for archiving reasons, and a quick look through for an outsider. The text could be hidden by default and become visible using JS.