About the demo's, I was mainly thinking of competitions/tournaments/arena etc etc. CS demos work with what? 20 people? You're prolly right that wow would have to send more information, but maybe arena-size teams would produce sufficiently small amounts of data for a demo/spectating to be possible.

After all, the demos dont contain advanced information, coordinates, timestamps and actions would get you far.

Also the need for precision in demos can be debated, it might not matter if every second coord update was removed etc etc.

CS Demos and WC3 demos are both very small in file size.
They don't record actual videos, instead they record the actions taken by players and render in-game.

Granted, implementing something like that will take a lot of work (depending on their code) and probably won't be available until the next expansion if they even decide to work on something of the sort. I think it'd be a great idea and an amazing feature that would really boost WoW in terms of PvP. It should also extend the life of the game. Most games that are represented at a league level (CAL/CPL) are around for many years.

They reversed engineered WC3 replay file scheme and tcp/ip packets. It is possible to watch games live with shoutcasts synced up with it. The files and the live games are no more than 250kB.
WC3 replay files for two players are about 500 actions per minut. I haven't dont calculations, but I think recording WoW actions for two players don't exceed 500 actions per minut if movement would be record in a sensible way.