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Using the random tables, I generated a NPC bandit chief with the "quirk" of "Possessed by Quirky Demon." I factored this in as a small dice bonus, but now the bandit chief is defeated and the Quirky Demon has vowed to return. How would you handle demonic possession in your game?

Most players are not going to like being possessed... so maybe focus on the "Quirky" part to make it a little more palatable for the player to deal with. Maybe have the PC suddenly exhibit some odd behaviors(random table?) at the most inappropriate time and then let them try and role play out of the sticky situation. Eventually the party should realize that something is amiss with the PC and have to determine how to exorcise the demon from the PC.

I would not have it possess a PC. Instead have it possess another NPC, now with a score to settle?
Pick a NPC or just wait until you roll the quirk again.

Then allow it to know the players, their their talents and tactics, and make it not underestimate them again. It might do some research, listen to rumors and follow their reputation gains.

Keep repeating the demonic comeback it until the players start to do some research of their own and finds a way to banish it more permanently.