Andrew has a good post on Tillich and demythologization. Here's a part of the text he is quoting.
The presupposition of such literalism is that God is a being, acting in time and space, dwelling in a special place, affecting the course of events and being affected by them like any other being in the universe. Literalism deprives God of his ultimacy and, religiously speaking, of his majesty. It draws him down to the level of that which is not ultimate, the finite and conditional.I think what is interesting about Tillich's criticism of literalism is that it is profoundly religious. He is not criticising literalism primarily because it turns religion into something that has to be accepted against better knowledge, but because it is bad theology. It deprives God of his otherness.