That's not what they meant by family members. What they meant was that you could designate about 10 people on LIVE as your "family" and share your game library with them. Basically instant demos for your friends. Like, I could set you as a part of my "family" and when I bought Halo 5 or something, you could download the game as well and play for a limited amount of time before being asked to buy it yourself.
As for what's wrong with demos: nothing really, except some studios don't even bother making them. This would have side-stepped that by just providing a digital download of any full game and putting a time-lock on it.
Not as good as what people assumed it was going to be, but not as bad as people are making it out to be either.