She said: "A lot of people work really, really hard for their dreams, but it's not meant for everybody."
The 50-year-old wannabe responded by saying: "That's why you use Auto-Tune and I don't."
New judge Britney Spears marked her debut in a big way, challenging music mogul Simon for his position as harshest judge.
She leapt to the defence of Demi, telling Shawn: "I feel uncomfortable with you even staring at me."
The 30-year-old pop superstar heavily criticized performers throughout the auditions, telling fitness instructor Amy Gibson that she was "kind of bad".
Perhaps the cruellest moment of the night came when Britney turned down 32-year-old vocal coach Don Philip - who she sang a duet with 10 years ago.
As he cried, she told him: "I feel like through the years, maybe you've gone through a lot of hardship and battles, like your voice really isn't up to the bar of the standards of 'The X Factor'."
Even Simon, famed for his harsh feedback, admitted that his role as the nasty judge could be under threat from Britney.
He joked: "And everybody thinks I'm the mean one."
Despite wiping away a tear after a contestant told an emotional tale of bullying, there's no sign of a complete change of heart from the music mogul.
He was back to his old ways with 22-year-old Kaci Newton, calling her "annoying" after a shaky performance of Katy Perry's 'Firework'.
He said: ""It sounded like you were dying. If you were dying and suffering and singing, I think that's what it would sound like."