Demon Sword isn't officially Kage 2, but it might as well be. As a ninja in what looks like a provocative dress, you jump around in bamboo forests and such, throwing shurikens and slicing at other airborne assassins in a bizarre circular motion. However, unlike Kage, Demon Sword has a measure of depth. You gain access to magic attacks that can shoot lightning and fire at your enemies, and even refill your life. Oh, and you have life. The addition of a life bar also allows Taito to include bosses who are more than just the normal guys in red outfits.
Demon Sword is, in general, a more in-depth game than Kage, which isn't hard. There are five worlds, all of which are different, and don't loop over and over again. They vary more than "forest," "different forest," and "forest in a different season," as well. There's no structure composed entirely of human bones in Kage. The sword for which the game is named starts off teensy and kind of irritatingly useless, but actually grows as you progress through the game.
For all the differences, both games are about ancient Japanese guys rescuing a princess from a stronghold. It's sort of like an expanded remake. However, Taito of America didn't pick up on the similarity, and put some barbarian guy on the cover. Taito USA named him "Victar" as well, which is also barbarianny. Either that or it was an intentional act of distancing! In any case, while it may have been similar, it is not intended to be seen as a sequel. Proving once and for all (sort of) that this isn't a Kage sequel, Taito released Legend of Kage 2 in Japan on the DS in March (and will possibly release it in the U.S. in September).
Taito was right to believe that the Kage jumping-around would actually be okay if you didn't die instantly in the middle of every jump.