Since pieguy1372 covers most of it pretty well, I'll just scout a bit... alright. Done.
I really like the nighttime overworld, and what you did with the Star World's cloud tiles to make small hills that seem more natural, unlike the standard "hills with eyes" thing in most Mario games, but you should fix the Moon's palette so that the white part is perhaps very dark, since that looks awkward... and maybe darken the land a little bit. Make the water a dark blue instead of black, so it doesn't look too much like the sky with ripples.
As for the cement blocks, perhaps replace them with a different block, such as the one from the Fancy Castle ExGFX set or the wooden one from SMB3, since the SMW ones aren't exactly pretty, and only fit well with the Star World 4/5 background.
I'm wondering why you're making this a forced two-player game, though. I'm one of those people who would have to play both characters since I don't have a buddy to play it with.
That sunken ship with the smoke coming out of it... I think it's pretty cool you put that in there as part of the plot, and judging by the plot, that's the starting point, right? Very creative.
Lastly, the yellow platform in the YI sewer - it will fit better with a different palette. Perhaps brownish, to make it look like rust in the pipes? :|
It's looking good though, but I can't really judge it since there's not a whole lot of info up here. I'm looking forward to seeing submaps and other levels, carsr4carpeople1. If you're looking for a beta-tester (probably not for a while, I bet) then I'll play through it.
(Edit: Proofread textboxes for grammar errors, as well, before you submit a demo.)
*Offtopic - I like your avatar. I keep watching it over and over again. D:
Just look above you...
If it's something that can be stopped, then just try to stop it!