The Imperial Guard player was completely in the wrong. Daemonic Assault works exactly how you stated it to work.
If the Daemon player 'sets up' first then they will deploy nothing whilst their opponent deploys everything, and then you Deep Strike in during your first turn. If the opponent sets up first then they deploy everything, you deploy nothing, and then your opponent gets a first turn with nothing to shoot at or assault before you Deep Strike in in your first turn.
He was also wrong in that he told you that you had to set up first anyway; the rules specifically state that the winner of the roll-off chooses whether to deploy first or second and winning the roll means you are under no compulsion to have to go first (in fact, as a Daemon player myself, I'd usually recommend you go second).