Hi Amit. Demo or not, I'd still recommend using something like Critsend instead of Gmail. It will literally take about 5 minutes to configure, as apposed to all the time you've spent trying to get Gmail to work. It may be a paid for service, but you get 50,000 mails for free to test it out, so for a demo site that should be ample.
I'm not exactly sure what the notification emails are that you mention, but if it's something that Moodle is meant to send emails about then Critsend will deliver them.