Ok, quite a bit to tackle. Here we go:

5% of all coins disappear per year. (BTW: Gesell's Wörgl had a much much higher demurrage.) I read this would be equal to the block reward which I guess is the asymptotic value and not the truth from day one (constant block reward as opposed to halfing block reward like bitcoin with 5% demurrage will lead to an equilibrium).

The initial distribution is split 20% to miners and 80% through foundation grants via an open, transparent, competitive selection process. The 20% miner subsidy started at approximately ~255frc per block, and linearly decreases to ~95frc per block over 3 years of block time, at which point it will perpetually sustain a monetary base of 100MM freicoins.

Proof of work: Approximately the amount of money goes into mining that newly mined coins are worth. If the client shows me that I have less in my wallet every day, the block reward is simply worth more. The proposed system means that 5% of the freicoin's money reserve is spent on mining per year. Today's banks most likely burn the same order of magnitude of world's money supply. Hmm, might work but it's a waste of resources to burn 5% of the world economy to keep book of transactions.

It is excessive in the long-run; the 5% value was chosen for other reasons. However we have ideas for fixing this, but would require a hard-fork (and therefore community acceptance).

Proof of stake: As mining might get excessively expensive if the value of Ƀ rises faster than the reward halves, proof of stake is an option to bring this waste of resources to an end. In Freicoin this would directly reverse the demurrage.

And here you get to the meat of the issue, although I'm not sure what you mean by "directly reversing the demurrage". With proof-of-stake along the lines of Meni Rosenfeld's proposal (not PPCoin), proof-of-stake voting could be used by a plurality of stakeholders to mandate that a portion of the perpetual subsidy go to groups other than the miners. On the freicoin.org forums we've put together an outline of a proof-of-stake proposal nicknamed "republicoin" that would resemble parliamentarian system of proxy-voting for parties which enter majority-vote governments giving them to right to claim budgetary control over a portion of the perpetual subsidy, the amount of which would be negotiated with the proof-of-work voters. Government-by-protocol, if you will.

This would obviously represent a hard fork. There are a lot of issues to sort out first, which is why it's been shelved for the moment.

Baby steps :)

I assume the developers of Freicoin picked 5% exactly because of these issues. Else 25% would be much more reasonable. 5% is the average weekly volatility of bitcoin and was the average daily volatility last year. $ vs € have this volatility yearly. Calling this demurrage is a joke.

To be pedantic, it's closer to 4.89% per annum (1-20 per block), but 4-5% was the design goal. The reason has to do with interest rates, specifically what Gesell calls "basic interest" and what modern economists call the "liquidity premium." The reasons why demurrage should equal the liquidity premium of money is outlined on our about page and covered in detail in Gesell's manuscript, Natural Economic Order (http://www.ces.org.za/docs/Gesell/en/neo/index.htm).