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I have at last worked out how to kill the demonknight at the top of Durlag's Tower. I got a two-handed sword +1 Some armour +1 and the Helm of opposite alignment. Does anyone know if this helm affects the behaviour of party members either in BG I or in BG II?

Just to clarify what you're saying, do you mean that you killed the Demon Knight right after he ended Ike's tour and then looted the sword, armor, and helm from his corpse? If so, how did you kill him?

As far as I know, the Helm of Opposite Alignment has only one practical effect: it makes evil characters happy when your Reputation is high (thus preventing them from leaving when your Reputation reaches 19), and it makes Good characters enjoy a low Reputation (I suppose they will leave when your Reputation reaches 19 if they're wearing the helm). It doesn't change their dialogue or their interaction with other group members. For example, Viconia will continue to say, "Get away from me, surface scum!" sometimes when other NPCs bump into her.

In order to kill the demonknight at the top of Durlag's tower. You have everything you need if you start the TOSC saved game that starts at Ulgorth's Beard. Try using that much information before reading the Spoiler below, as it certainly gave me a buzz working it out for myself, more even than working out how to kill Tazok at the bandit's camp.BIG SPOILER coming up, highlight to read. Use scroll of magic protection on the demon knight. Then move party to the left out of range of the fireballs and pelt him with missiles. The throwing axe that returns to hand is very useful. he takes a long time to die!

I used a different tactic to kill him. BTW, he isn't worth any XP on the main floor, but does have the nice treasure mentioned above.

SPOILERS BELOW:
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I cast "Otilukes Resilient Sphere" on him, and then attacked him barehanded with everyone in my party. When the spell wears off, he'll have but 1 HP and I have everybody attack him with a weapon. This same extremely cheesey tactic works on the lower floor as well, in case you were wondering.
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That is just plain cheesy. Good work.

On the lower level (where you're SUPPOSED to fight him), I usually go toe-to-toe with him. I buff up my melee warriors with spells and potions and then use a Potion of Magic Resistance to counter the Demon Knight's Dispel Magic spell. The hardest thing for me is killing BOTH the Demon Knight and his duplicate (the one that jumps out of the mirror) before one of them kills the other.

Where you're supposed to kill him, I have usually used a thief wearing boots of speed kill him with backstab, but there must be countless ways of doing that depending on gameplay style. I must admit that I have never tried killing both however.