I believe it will overwrite game saves, I just used my old 20Gb HDD until I borrowed a data cable, I'm still waiting for the one I ordered 2 months ago. You can get round it by getting an official memory card and copying the game save data and then transfer it back once you copied your old drive to the new one.
Not sure about demos though as I found Test drive unlimited and Cars on my new drive after transferring but don't remember downloading them???