I think that is good advice. If we had tried to show our demo to groups that had never seen the product before, we might have been better prepared. We'd be ready to anticipate and answer questions before they come up. We also would have probably learned about preparing our data so that anything not flattering isn't included.
My problem was worrying too much about being prepared. I felt like my life depended on it and got too nervous. I dont really show nervousness, just start saying stupid things that I wouldn't normally.
Had I walked in totally chill and hang loose I feel I would have at least done better. The more you can convince yourself that you really dont care the more relaxed you will likely be. At least that is my $.02.
In retrospect, I'm so thankful YC gave us an opportunity to interview though. The lessons learned on pitching to an investor were so valuable, as was the advice. Even not being funded by YC it is a win-win in one way or another.
Of course I agree with you, but it should hopefully go without saying.
Perhaps YC should start with a 1 minute elevator pitch. The point isn't to show off the project, but to get interviewees to understand you won't have more than a minute of the stage and things will be dominated by questions. If I understand it, the 1 minute should be a good test of how you can present at demo day with none of their coaching.
I'd add to this: When you are pitching to friends/family, ask them to pepper you with questions/objectives/concerns AS THEY OCCUR TO THEM... The flow of the interview is going to be decidedly outside of your control. If you can't gracefully handle rapid fire questions, it won't go as well.
Pitch everybody you know on your idea, and have the smartest people you know poke as many holes as possible, and address them. Then do it over again.