The demo backup is a backup of your database only, and the images are not stored in the database, so you’ll need to use your local copies for that.
Now, we still need to get you all straightened out so we can get that line out of your config.php and get your control panel styled. Are you comfortable moving around the unstyled control panel? If so, I need you to find your way to Admin -> System Preferences -> General Config, and update both the URL and Path to your Themes folder. that should fix up the control panel styling.
After that, to fix up sessions, head over to Admin -> System Preferences -> Cookie Preferences and make sure those are filled out correctly for the current site.
I’m heading out for a little while but will check in with you later on this. =)