It depends how good your live performance really is. The better you are, the more advantageous the live audition vs a demo CD. OTOH... last summer I saw a Beetles cover band who's performance was IMO below average. When being introduced, the sponser stated that this was the first time she hired a band without hearing them in person, but she was so impressed with their press kit.

I was curious enough to obtain a copy of their press kit and it really was fantastic... photos, press released endorsements, and a CD that sounded better than they sounded live.

IMO, go the route which gives the better impression of YOUR performance... preferably live, but keeping in mind, you can, in addition, cover more ground by also using demo CDs.

Glenn