Terraria – Eye of Cthulhu in Terraria Xbox 360 edition

The Terraria demo appears to be fully functional, with a couple of limitations:

• The world is much smaller (Some people are saying it's 1/10 of the small world)
• There's no character/progression saving

As for what happened to you, I'm guessing you were unlucky and the game crashed. There are a few people reporting similar experiences with the full game on the Terraria forums:

http://www.terrariaonline.com/threads/game-crash.96733/

To spawn the Eye of Cthulhu you must be over ground, and you should spawn it at the start of the night. If you spawn it at the end of the night, it will fly away be you see it.

Other than that, it may possibly be a glitch - you should restart your console and try again if you think it is.