I'll throw a question back at you: why does it seem like so many people today believe in angels, but not demons?
I really liked what you did with this story.
To your questions, and I'll lump 1 and 2 together. Is it not common today? Perhaps demonic interactions take on a form that we see as "simply" medical. What if the way that demons influenced us was through illness?
-note: as I believe you personally know, NJN, but for the benefit of those who don't but might read this, I have a mental illness. I suffer from an anxiety disorder with panic attacks and depression. It has been bad enough where I am non-functional, and only through medication avoid that sort of thing. So please don't think I am saying that all medical and mental illness is "the work of the Devil". I will tell you, though, that with the sort of problems I have faced, I have also had thoughts and impulses that are far from the Good. Is it not possible that those are something on top of the merely chemical imbalance?
Next, if it is not common today, why not? I think it could very well be that there is no need for demonic forces to manifest in such a way in order to get their desired results. Perhaps today it is more efficient to lull us to sleep. Back to my own mental illness: when I am having a panic attack, I am torn open to God. I have to just throw myself on Him and wait. When I am healthy, I might not think of Him as much, and certainly not to the same dedication (much to my shame).
It may be that if I grew up in a society where I would not throw myself on God, but rather on false gods, or demonic forces themselves, it would be more potent to terrify me in order to keep me FROM God, rather than pushing me to Him. Likewise, in a society ruled by superstition and pagan beliefs, maybe horrifying possessions kept people in the pockets of the demonic.
Then again, maybe with Christ's advent the demonic forces started being bound, and we really do have less spiritual warfare around us. Maybe we are bad enough on our own (humanity) so that the slack is taken up by us. (but I don't think this one is the case)
As to question 3: I would say it might be powerful today because (I assume) we've all had urges and impulses that overtake us without our conscious assent. We all lash out, hurting ourselves or those around us despite our better judgement. Maybe being possessed by evil spirits isn't as alien a concept as we would like it to be.