Testing the waters on a live account with small capital will give you an experience that'll have more exciting but traders shouldn't underestimate demo accounts as they're there for a reason. We should use demo to practice all our trading strategies and make our skills to be perfect before going lives. Losing a trade can motivate you but not everybody has the toughest skin to take losses and turn them into profits. Some traders lose their self confidence after they lost some trade therefore before putting yourself out in the real market, we should have had enough practice in the demo account to make our prediction to be more accurate and less of assumptions.
I know that Demo is for a start-up phase and will also guide every single trader who is willing to learn and expand their knowledge of trading to be fruition, but at some moment we shouldn't feel that relaxed in it because it's also something that could give us that weakness to not put much efforts while doing. For instance, when you starts building your trading account with all confident and even though you are being swept off you wouldn't attached more value to it because you think that it's not a real account hence your fund would be topped up immediately after exhausted it without even thinking that in live account you won't have that privilege to be topping balance that easily and you know whatever that comes with real money always have some tension attached with it.
I agree with you, relying or sticking too long on demo accounts will not bring us any benefits. In trading, in addition to knowledge and skills...we need to remember that emotions are the deciding factor in our trading results. Demo accounts cannot give us the most realistic feeling like real trading because we are aware that it is just a simulated environment, even if we make wrong predictions, it does not harm us.
In general, using Demo for a long time will form many bad habits and lack of discipline, which will not be good for us when switching to real trading. Yeah this is what i mean while trading with Demo account but we just have to be very smart while using it because we can't control the previous that has been established while trading on demo, but involving in real account makes us to be that conscious that of our lost while trading learning along the line. But however demo can only gives us some basic stability to guide us while trading meaning it creates that knowledge and principle to follow the market to avoid much lost while trading but put and relying entire on it could make us to be weaker when trying to switch live account.