There's no reason why they have to be real demons; since it is DE, they could just be manifestations of Rhue's mental "demons". They could also represent the taint in the sword.
I'm in favour of them being mental creations: the truth about Rhue's past could be said to lie in the reaches, and by overcoming his fear of that truth, or some kind of mental block that evolved or the PS put up (represented by the demons), he is able to understand the truth about his past and his origins, as he metaphorically "falls into the Reaches". The disturbing thing is that all we see when we go back to the Middle Way is a patch of blood. Which means someone must have bled. The idea that seems most possible to me is that Rhue, having understood his nature and his origins, wakes up (probably having completely bent the sword to his will, making it a sort of amoral soul-suction device). Although he is now aware of himself and has the desire to keep trying, it may be that Gaius senses his true nature now, and perhaps tries to kill him. The Illuminati itself may also want to kill him - after all, Venge has killed an awful lot of people unjustly in his life. Particularly since I'm guessing Rhue would now make no pretense of being "just", unlike the PS.
That's the problem with the reaches ending: there's far too little evidence, so we can only speculate.
The theory Sarcasm refers to is a body of posts on page 2 of the "My theory from Venge-Rhue" thread. And Sarcasm, this is kind of my reply to what you've been posting in the other thread too