TS, you are missing the consequences of the button being misused. There is nothing wrong with criticism when it is constructive. Demote button equals to a destructive criticism, because it wouldn't tell the blogger what is wrong with the post, only that someone doesn't like it. Seasoned bloggers can easily brush off destructive criticism. What about the newbie blogger?
A person starts writing because he feels he may not be great, but he is not that bad. A destructive criticism is going to ruin his confidence. I think everyone is a mediocre writer. We improve with every word we write, and every year we write. We need to encourage a newbie writer. Who knows he/she might end up being better than we can ever be. But, misuse of demote button might put him/her off writing forever. Indiblogger is here to encourage bloggers not to discourage them.
Besides, reading is subjective. The only problem with the most demoted post might be that it is read by the wrong audience.
Instead of a voting and a demote button, why not use rating system like TF Carthick suggested? This way we get a range of voting buttons. Those who want to demote can give one star, and others can give any number they feel the post is worth. The average would give the real value of the post. Then, only the best post would get all five stars, and everyone else would have a range of feedback.