The Collaborative International Dictionary of English v.0.48:

Demoralize \De*mor"al*ize\, v. t. [imp. & p. p. Demoralized;
   p. pr. & vb. n. Demoralizing.] [F. d['e]moraliser; pref.
   d['e]- (L. dis- or de) + moraliser. See Moralize.]
   To corrupt or undermine in morals; to destroy or lessen the
   effect of moral principles on; to render corrupt or
   untrustworthy in morals, in discipline, in courage, spirit,
   etc.; to weaken in spirit or efficiency.
   [1913 Webster]

         The demoralizing example of profligate power and
         prosperous crime.                        --Walsh.
   [1913 Webster]

         The vices of the nobility had demoralized the army.
                                                  --Bancroft.
   [1913 Webster]

The Collaborative International Dictionary of English v.0.48:

demoralized \demoralized\ adj.
   made less hopeful or enthusiastic; rendered pessimistic; as,
   the demoralized Iraqi ground troops put up little resistance.

   Syn: discouraged, disheartened.
        [WordNet 1.5 +PJC]

WordNet (r) 3.0 (2006):

demoralized
    adj 1: made less hopeful or enthusiastic; "desperate demoralized
           people looking for work"; "felt discouraged by the
           magnitude of the problem"; "the disheartened instructor
           tried vainly to arouse their interest" [syn:
           demoralized, demoralised, discouraged,
           disheartened]