This is a very solid demo, I daresay! Haven't played the original back in the day so can't really complain about the musical changes. Regarding to audio, though, I'll agree that the mixing needs some changes. Music too low, SFX slightly too loud, yadda yadda.
The game didn't lag for me on the second level, but, what I have to say about it is that at certain times I couldn't see things right because tangible objects were too similar to untangible ones. That wasn't all the time, though. Just some sections of the level had that problem. It could be just me, though.
Another thing I've noticed is that even small jumps on a slope can make Sonic go reeeally fast. I don't know if that's intended, but, if it isn't... then it's something worth pointing out. Wish y'all the best of luck with this project!