I have a hard time believing that theory about the HMS being a part of Demise's army. Also, first time I saw the Fishermen from OoT thrown in, and in my opinion that makes no sense.
I've always hesitated to say he is demon possessed because he doesn't seem overly powerful. But then I thought about it and it occured to me that there could be different leveled demons. The Happy Mask Salesman may not be possessed by a cheif demon or anything, assuming he is even possessed at...