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Well you can look at the sales of Demon's Soul two ways,

"80% sellthrough, that's really good!"

or

"who cares if it's 80% sellthrough? It's still only 23,000"

So everyone take their pick!

Also, I wouldn't say DS is aimed "squarely at Japanese gamers". If I first saw a video of the game with no prior info on it, I would definitely guess it was made by a Western Developer.