Are the items given by that demon any good? Or should i just try and kill him?

Most are better than what you get when banishing him. Trying to kill the beast is... an interesting experience. It's probably best to save first and try out some of the different options after.
It's easier if you follow your alignment rather than try to go for the most powerful items, but that all depends on your preferred style of play, of course.

I ended up doing the aligment way. since im a good elven ranger, i ofcourse banished the demon. btw, how did you fight the demon? he just laughed at my face and left.

Exactly [img]smile.gif[/img]
You can't truely kill the demon. There's just no need to spoil that.

Aah, i get ya [img]smile.gif[/img] . i just wonder why not. demons are supposed to be chaotic evil monsters who love maiming all living beings!

Considering it's a chaotic evil monster who loves maiming all living beings, and appearantly has been relatively succesful at that considering the place you met him, you're probably beneath his notice.
Even though this incarnation of Chaohinon is 'only' a level 8 demon...