According to the manual, One S2 account is valid for 3 users on a LAN network..We tried to create a s2 server and have the other pc that uses the same account has the host to join the s2 server but it got a message saying invalid host ip...any1 has a clue about this?

You have to specify that it is LAN.

wait...if the lan won't accept hamachi, which the ip ranges from 5.x.x.x , how come the demo works fine on hamachi not s2?

Because Demo users dont have an account, however an S1/S2 user could race each other via the Internet but only use 1 license, also it bypasses the Master Server which could potentially let a cracker online.

Overall, everyone has access to the demo so no-one can get anything they shouldn't and it's allowed, but in S2 people could use it to get stuff they shouldn't, so they cant

ah so i better convince my friends to get the game as well..