1) You need +3 weapons to kill clay golems (also +2 blunt weapons but I've never found those to work for some reason). Anyway I like to buy the staff of rhynn from the adventurer's mart which always works. Also you can cast lower resistance on them and use magic missiles etc.
2) Are you playing a fighter? Each class has a different stronghold. If you're not a fighter (or barbarian or monk) then the keep isn't your stronghold so you won't get possession of it.
3) Again I think you need at least +3 weapons for this demon. I found the cleric spell free action useful because he stuns. Again lower resistance before you can cast mage spells on him, then cleric spells such as bolt of glory work very well on demons.
Re dialogue issue - have you got ToB installed? There is a bug associated with that where you get the You cannot initiate dialogue message. If so you'll need a patch, which I'm sure someone knows where to find
