i do believe people can be demonized (but i haven't seen the emily rose movie). i certainly didn't always believe that and would have looked at you like you were completely nuts for suggesting it, but it became abundantly clear to me this stuff is real and can happen anywhere not just in places like africa.

as for whether one is dealing with mental illness or demons it isn't necessarily an either/or but can be both. a friend of mine once said that the demonic likes to piggyback on mental illnesses and makes them that much worse. so, i think a person can be dealing with mental illness, the demonic, and sometimes both.

if you want to learn more about this a good book is deep wounds, deep healing by dr. charles kraft a seminary prof, anthropologist and missionary. he gets to the roots as to why a person might be demonized (common reasons are drug use, abuse, involvement with the occult/new age, things passed down from one's family line, promiscuity, etc) and makes the analogy of garbage and rats. the garbage is whatever is giving the demons an opening to attack the person and the rats are the demons. the idea is if you get rid of all the garbage then the rats will leave because there is no reason for them to be there anymore. when he prays for people he also doesn't let the demons get all crazy or cause a fuss at all. it can be downright boring when he does what is called deliverance (casting out demons).
all this is just my opinion.