I am trying to do the following:

I am in need to create many sites with the same top-level domain. The format I would like to achieve is the following:
www.demo.com/site1.com
www.demo.com/site2.com

With that, I would just like to create a template and essential change the {site_id}.

I do want to have seperate sites AND seperate DBs for each site. I want nothing shared between the sites. I tried this and attached a screen shot. I know it is a bit messed up, but any help is appreciated.

What has failed ?

I see that you ask to create a new website into a new db using the {site_id}.
Did you used a MySQL rool user to allow creating DB dynamically or did you created the DB before runing the rule ?

Perhaps you could start to build the website into the same DB (here the master DB one) to identify the parameter that does not work.

Do you want to create the website from the front-end or from the back-end.
In case of the front-end, the {site_id} parameter is not filled and is computed with the "to site id" field.

The key element concerning the domain.com/{site_id} is the location on the disk that seems correctly located in {root}/{site_id}. This seems correct.