DayZ Requirements

The best loot guide around that I know is backed up with code snippets. The executive summary:

• Each building is triggered individually, and has its own loot-spawn timer.
• Loot spawns as soon as a player is closer than 120m but farther than 30m from the building. The building's loot spawn timer also starts then.
• Every 10 minutes new loot will spawn if and only if there is a player in the 120–30m ring. A player in that ring will cause loot to spawn on the timer even if there is another player inside the 30m ring. If you're not inside that ring when the timer checks for a player, there will be no new loot.
• Each spawn location in a building has a 50% chance to populate whenever spawning is triggered, so emptying loot spots helps.
• Backpacks and ammo cases don't count when the code checks if there's already loot in a spot.
• Bonus: Zombies spawn when a player enters a 200m circle.

For a pretty picture of the trigger ranges and the code snippets to back these up, read the full guide.

According to this page, the free version is mislabeled as a demo. So the "demo" is actually the free-version.

The difference between ARMA II and ARMA II Free is that Free has lower quality audio/textures, and doesn't have the single-player campaign.

Also, according to this page, ARMA II Free can be used to play DayZ Mod (you still need to purchase ARMA II: Operation Arrowhead). That page also confirms that you get ARMA II Free using the "Download Demo" button in Steam:

Users on this page have confirmed that DayZ does indeed work with ARMA II Free.

• Yes you can in fact download Arma 2 Free and buy Operation Arrowhead and install it to Arma 2 Free. Then you can already play [DayZ]
• The free version has low resolution textures but people say it will work. Remember, there's no support for the free version, so if something goes wrong.. well you're kind of on your own.