Ok "the demo not found" message is very misleading. If Epsxe can't find anything eg memorycards, cds etc it always says this message.
I assume that from your above comments that you are changing the game whilst leaving the emu running (most likely by trying to use the change disk option). This option is for change disks for games on more than 1 cd not for changing games. If you want to change games you must exit the emu and then reload it.