The guide is dependent on you following through the previous steps. At the end of the Demo Theme chapter, you should have in /boot/grub/themes/demo:
7x13.pf2                       sb_th_c.png
arch-24.png                    sb_th_n.png
caribbean_sunset_200.jpg       sb_th_s.png
center.png                     select_c.png
debian-24.png                  select_e.png
dejavu-sans-10.pf2             select_ne.png
dejavu-sans-12.pf2             select_n.png
dejavu-sans-bold-14.pf2        select_nw.png
desktop.png                    select_se.png
gentoo-24.png                  select_s.png
gnu-linux-color-wallpaper.png  select_sw.png
kubuntu-24.png                 select_w.png
linuxmint-24.png               terminal-background.png
menu_bkg_c.png                 terminal-background-workaround.png
menu_bkg_e.png                 terminal_c.png
menu_bkg_ne.png                terminal_e.png
menu_bkg_n.png                 terminal_ne.png
menu_bkg_nw.png                terminal_n.png
menu_bkg_se.png                terminal_nw.png
menu_bkg_s.png                 terminal_se.png
menu_bkg_sw.png                terminal_s.png
menu_bkg_w.png                 terminal_sw.png
opensuse-24.png                terminal_w.png
progress_bar_c.png             theme.txt
progress_highlight_c.png       tick.png
sabayon-24.png                 tux.png
sb_fr_c.png                    ubuntu-24.png
sb_fr_n.png                    ubuntu-glow-24.png
sb_fr_s.png                    windows-24.png
And under /boot/grub/themes/demo/icons:
arch.png    gnu-linux.png      opensuse.png  slackware.png
debian.png  LICENSES           osx.png       submenu.png
fedora.png  linuxmint.png      recovery.png  ubuntu.png
gentoo.png  mandrivalinux.png  sabayon.png   windows.png
Now, at the start of the Distributing Your Theme chapter, the first command:
mkdir ~/grub-themes ; cp -r --no-preserve=ownership <grub_dir>/themes/demo ~/grub-themes/ ; cp ~/Documents/grub_guide/ed3/ ~/grub-themes/demo/
creates a grub-themes directory in your /home directory and copies the /boot/grub/themes/demo directory and the ~/Documents/grub_guide/ed3/ file to it.

Follow the steps in the rest of the chapter.

If you did not follow each step up to this point, the install script may fail. This should help with testing the demo theme:
mkdir ~/grub-themes
cd ~/grub-themes
cp -r ~/Documents/grub_guide/ed3/demo .
cd demo
cp -r ~/Documents/grub_guide/ed3/icons .
cp ~/Documents/grub_guide/ed3/ .
sudo rm -r /boot/grub/themes/demo
sudo ./
This will install the demo themes and icons to /boot/grub/themes and set the variables GRUB_BACKGROUND and GRUB_THEME in the /etc/default/grub configuration file. It will also run update-grub to generate the new /boot/grub/grub.cfg file.

export GRUB_MENU_PICTURE="/boot/grub/themes/demo/demo/gnu-linux-color-wallpaper.png" is not set by the install script.

Thanks for the suggestions in your other posts.