Demon's Souls is great, and a deserving GOTY.
On one hand its pretty shameful that Sony elected not to publish the game outside of Japan, but its quite understandable given how unfashionable the notion of "game as challenge, not entertainment" has become.
And that's the key thing. Demon's Souls does not want to tell you a "cool" story, does not want to guide you through a range of pretty, wonderful environments, does not want to keep you happy with an endless stream of mindless risk-free busywork, and most of all does not want to hold your hand and tell you how to win.
Demon's Souls wants to you to feel intimidated, feel challenged by the task ahead of you. Because the designers at FROM remember that the degree of satisfaction you take from victory is reflective of the difficulty of achieving it.
Actions have severe and persistent consequences because they want you to treat the world they have designed with respect and care.
And this is absolutely crucial, because DS shows an uncommon degree of respect for the gamer, not just in the sense that if you want to cripple your options by killing useful NPCs it allows you to do so, but in how the whole "death" mechanism works:
When you die, and retrieve your souls, you have effectively "doubled-up" the stakes. You can bail-out and head back to the nexus at a cost of losing your progress, or you can press on at the risk of losing the souls you have accumulated thus far.
Risk/reward is in your hands. Its not making that decision for you. The game remains its stoic unyielding self and expects the player to adapt their approach to an acceptable level of danger.
And that guys, is a powerful, powerful tool.
Anyway, the key thing is this:
Despite the claims that Western games in recent years have pushed the envelope in allowing player expression/freedom, what has happened in the majority of cases is that developers and publishers have simply pandered to the audience's percieved laziness.
Offer an array of busywork tasks to keep idle hands occupied for a prescribed number of scenes/locations/hours = POPULAR WIN.
I'm not saying that's essentially wrong or ineffective, but it is formulaic and shallow. True freedom includes the freedom to fail, to feel overwhelmed and intimidated by the task at hand until you grasp and master the necessary tools for success.
For me, that understanding is the measure of the greatness of Demon's Souls, and why its a deserving GOTY.