Ho Don,
Have searched for your custom styles xml file, but can't find it All of these need to be on your server and in the right directory. I also see that in the various files there is reference to both 'demos' and 'Demos'. - it is good to try to keep to the correct case.
Did you define a new site in Dreamweaver, - specifying a new (empty) 'root' folder for local site, and new (empty) 'root' folder for your testing server before you started as I suggested? I don't see how the xml file could be missing.
According to the convention HTML Editor seems to use to set up your styles xml file, it should be: http://www.sparklight.org/HTMLEditor/custom/HTMLEditor_TestStyles1.xml - (or 2.xml, 3.xml etc, depending on how many goes you had installing it. (I tried up to 10). It should be in the same folder as the 'http://www.sparklight.org/HTMLEditor/custom/ HTMLEditor_undefinedStyles1.xml' which is in there.
