No, I don't think this was just the "demo effect."
The BSOD experienced by Bill Gates on screen, that was clearly the "demo effect." It was a truly unexpected interruption to the demo.
If you watch the videos linked in the summary, you can see that the core functionality isn't close to ready. Never mind AI, he did successfully "click" the "answer call" button on the screen (after the first time failed), and it still didn't actually...answer the call.
As someone who has given many, many software demos, complete with a few failures, one thing I've learned is, when you give a demo, you'd better rehearse. And when you give a high-stakes demo, you'd better rehearse multiple times. And if the rehearsal showed unreliability, you'd better know why it failed before you go into a live demo, or you should cancel the demo. THAT's how you overcome Murphy's Law of Demos.