I figured out the problem was the Open GL graphics with my demo. I just downloaded the Direct X version and its a night and day difference. The game looks really good. I can't believe the way it looked before with lines all over the screen and washed out blurry graphics but I still thought it was good enough to play the game, but now it is nicely polished and I can actually make out small details. Its of course not up to the standards of say Baldur's Gate's hand painted backgrounds, but its damn good for an indie game!
I'm surprised they don't give the Direct X version as the default for Windows version, it shouldn't be as hard to find as it was for me. You have to go to an obscure "support and updates" page to find this version, and then download it separately and move it into the Avadon folder. It really shouldn't be this much trouble to do all this in my opinion, it might put off casual people from buying the game.
My little rant over with, I'm really enjoying the demo. Its a lot better than I thought it would be given the negative comments about it. To me, its a must buy for an old school rpg player. It reminds me of Basilisk Eschalon game, but with a big difference, you can have more than one person in your party, which makes combat much more interesting.