I joined this game myself somewhere in the midgame stage. Despite being an experienced civ player I found it somewhat diffuse to grasp everything that was going on. I did download the savegame and even posted a few suggestions and after following the game for a while I got into it. Still there was a higher treshold than I had imagined because of the many plans and things going on that required extensive browsing through old threads to figure out what exactly people were talking about.
I didn't have the time nor the dedication to get fully involved in this game and start running for government positions, so I have just been occasionally dropping by to post some minor comment since then.
There seems to have been plenty of new members who have registrered in the registry thread since I join, but how many of them has stayed as active players? I don't know, but I guess not very many of them. I'm not totally sure of the reason why not more people stay to become active or drop off the game, but like I said the treshold might be higher tahn you who are involved in the game think it is, so doing something about that could help. Also getting more players to participate from start would also be a good idea
About playing on lower difficulty I think it would make the game even less challenging than it is now. In sp games many people (myself included) tend to not finish most of their games because they are certain of victory, so there is no challenge. Same goes for the demogame to some extent even if the democracy part of the game still can be fun even after everyone know the game will be won.
A more challenging game can be had by playing team demo game as we do on GC, but that also bring other sorts of problems like smaller teams and the democracy part of the game becoming a bit suffering.
I don't have a perfect solution for the best form of playing demogames, but I still like them enough to play them as they are. If we want to attract more players however we will probably need to improve the current form of demogame to make it more attractive. I'm not sure how, but maybe add some competitive element outside of the actual game. It could for example be having all players divided in 3 parties with certain opposing agendas set from start, like one military party, science/trade party and isolationist party. Just wildly tossing around ideas now, but my thought with this is to add more of a political/democracy game in addition to the civ game. I'd like to see more "political maneuvering" and give people some reasons for making decisions not necessarily for the best of the country, but also for the best of their party, just like in real democracy
To be honest the fun of playing demogames isn't really the game part as in smacking around a few AI civs, it's the democracy part played here on the fora.