Can a class 2 manufacture a legal class 3 weapon from a demilled kits (Sten) then register it and be legal? I see these tubes on Ebay for diplay or class 2 use only and wonder if they can still manufacture class 3's.

A licensed manufacturer (07FFL/SOT) can make a post-sample weapon from a demilled kit, however, only a class III dealer or manufacturer can possess that gun.  They can't make it, register it, and sell or give it to an unlicensed person.  Even for a dealer to get such a post-sample weapon from a manufacturer, he'd have to get a demo letter from a government or military agency requesting a demonstration first.  If you want one, you need to be looking for a "transferable" gun (currently about $2500 for a sten).  Registration of MG's for civilian possession was cut-off in May 1986 which is why they're so damn expensive.  Its a fixed supply of guns with an ever increasing demand.