This thread has touched on so many different aspects it difficult to figure out where to start.
1) I think for a demo you can create it at your own studio. It is in fact a "demo". It is created to get attention for the artist, and to represent their potential. If a label likes the the artist, they will put up the financial backing (of course they will make it recoupable

), then it is time to go into the "pro-studio" to do the project correctly.
2) In terms of Home vs Pro, it depends on the level of the people doing the production, arranging, and engineering (at home or at the studio).
3) It also depends on the type of music you are creating.
I make "House tracks". So, I can do it all at my studio, or at one of the studios of other Producer/DJ's I spin with in this city. Or I can do all the necessary production, then send it overseas to one of my associates overseas. I let them "tweak" the song a bit, then they FedEx it back here to the US.
I think that dance/house music is easier to "do" than other music. I am fortunate enough to have a decent-to-good home studio. My "ears" and production knowledge are definitely getting better. Plus, I can go down to multiple clubs here in Chi-town to see how the music will sound at variuos venues. And...I can play it in my live mixes at the club to see the crowds reaction to the song (before I get it pressed to wax

).
4) I would, however, suggest that individuals send their music to get mastered at a reputable mastering house. They can do wonders to help fatten your sound (if that is what you are looking for...).
5) You can save a sh*tload of money by getting the majority of your pre-production done at home.
6) If you are going to use a Pro-studio take in music that you want your music to somewhat sound like. The engineer or producer cannot read your mind.
7) You should also use an engineer that works on the format of music you are creating.
8) If you are paying for professionally services, make sure you leave out of that studio with the music sounding the way YOU want it to sound. Remember...It's your money, they are working for you. You will be pissed off, if you spend a couple of G's ($2,000), and you are unhappy with the finished product.
To reiterate, it really just depends on your skill level/knowledge and equipment.
spin