First of all you are installing
"\S60\devices\S60_5th_Edition_SDK_v1.0\Epoc32\data\z\resource\apps\Demo_0xEA3F66D2.mif" -"!:
\resource\apps\Demo_0xEA3F66D2.mif"
so it shows some kind of absolute non-understanding if you really expect \\resource\\apps\\Demo.mbm to be there.
The second thing is that providing \\something will not necessarily find out where your application installed.
You can detect the installation drive in run-time
Code:
_LIT(KMifFile,"\\resource\\apps\\Demo_0xEA3F66D2.mif");
TFileName filename=KMifFile;
filename.Insert(0,RProcess().FileName().Left(2));
...
AknIconUtils::CreateIconLC(AppIcon,AppIconMsk,filename,j,k);
(where the Demo.mbm is also fixed).