Board Thread:Help Desk/@comment-24533714-20140211162612/@comment-7697305-20140213174713

I suppose the best thing to do would be to skip mining Demonite and just kill the Eater of Worlds in order to be able to craft Demonite-tier items, then see if you can mine the Demonite with a Nightmare Pickaxe. If not, you may want to report that as a bug on Terraria Online.