I've played demos in the past and sometimes that has led to a purchase of a full game, and sometimes not. A difference/problem with this newer model is that paying could lead me to being asked for more payments: I don't necessarily know.
If the game was advertised at free, but then charged me after a point (i.e. if I didn't know in advance that it was a demo), that would be an immediate deal-breaker.
Unless it was clear exactly what I was paying for, I would be unwilling. Will I have to pay for level 16? If it was possible I would be asked repeatedly for more money later, I would be unwilling.
When you had to physically get your software out there and into people's hands, that was perhaps a good model.
Now, it's more awkward. Asking me for payment for partial content is a dangerous indicator that you might ask me for more, later.
There's also reasonable evidence that demos reduce sales figures (i.e. that demos act as negative indicators):
http://uk.ign.com/articles/2013/02/11/jesse-schell-releasing...
Most that I've seen seem to require purchases to unbreak the game or make it so that progress isn't artificially restricted by time. I think this effects some people more than others (WoW, farmville, clash of clans players who pour thousands of hours/dollars into the game).
Hold on for a minute. WoW is almost the exact opposite of this model, and for that reason I still respect it as an MMO compared to others I've seen.
In WoW, at least when I played it heavily during the Lich King expansion, you pay for the game and for a monthly subscription fee and that's it -- there was no other use for real money other than maybe buying a faster computer or a vent server, but that's outside of the game environment. Buying gold, while possible, was heavily discouraged and bannable.
This policy made WoW feel very fair to teenage me and I ended up putting a considerable amount of time into the game as a result. I realized that it was plausible for me to be the best simply by putting enough time into it.
Additionally, WoW's social environment is typically what keeps the long-term players going (as opposed to ingame objectives, although objectives are important for keeping players engaged), and that's another story entirely.
I don't personally have an issue with it, but their IAP is encroaching subtly on the gameplay, and it might not stop there.
If however, they called it the full game, then yes, it is a deal breaker.
IAP is open-ended. It targets certain types of personalities. It is exploitative in that you can respond to calls to "help" other players. Addicted "whales" dominate revenue.
Up-front, I have no way to know which exploitative model is going to be used. Just seeing IAPs are involved is enough to turn me off. It's not worth the effort to investigate.