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I mean, Moloch is not a demon in Watchmen, he has no demonic powers...
Quite right. No-one is saying he has.
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...and he probably chose this name for the same reason of Captain Carnage - to cause shock and daunt, and nothing more.
Quite right again. But the question here isn't what motivated the fictional character to choose his name, but rather what motivated Alan Moore to choose that name for his creation.
WATCHMEN, like all works by Moore, is filled to the brim with references culled from classic literature across the ages, philosophical concepts, religious ideologies, and pop culture. It's positively overflowing with 'em, in fact. Some are glaringly obvious, others much less so. As you have so rightly pointed out, there are many facets to this work (i.e. the origins of the characters' names for one) that remain deliberately unanswered by the creators even after all these years and which are thus left down to the readers/scholars/rabid fanboys to interpret for themselves, to draw their own conclusions without being spoon-fed along the way.
I'm as guilty as anyone of analysis to the
nth degree, interpretive overload, and coming up with suggestions that are probably as far from the truth as can possibly be, but remember that's all they are: suggestions. Not fact. Not to be taken as read to the exclusion of all other ideas. Just concepts put out there to promote discussion. That's the fun of it, and what enables this work to continue to be read, appreciated, and talked about in places such as this a full twenty-one years after original publication.
Alan Moore is smart. He creates smart work for smart people. WATCHMEN is only one such example. To fail to attempt, or to even refuse, to venture beneath the surface and peel away multi-faceted layer after multi-faceted layer is to view this work on a spectacularly superficial level only... which is truly a waste.
Read it again. Come here, visit other discussion sites, go over some of the multitude of essays and interviews that have sprung up over the years and which populate the internet regarding this work; many have links that appear on this very site. Read it again. Come up with your own theories and interpretations to explain the possible relevance of not only all the references but also the wider thematic messages at the heart of the story, post them here and elsewhere, invigorate the discussion in order to promote an exchange of ideas. And read WATCHMEN again. Keep reading it whilst going off to research all the intricate details, study the art, soak up the plethora of content crammed between those covers. Work at it - believe me on this at least, you'll need to, just as the creators intended you should to get the most from their labours.
And truly enjoy.