I think that the armor has something to do with it. The other two demons kept mentioning that the armor knight never spoke at all. It makes me think that the only reason the other Takeru could speak was cause the helmet fell off.
I'm guessing if the full armor came off, he'd have full freedom with the hero's body.
Since he can speak and reply to Karen. I do think he still maintain his own free will.
For why he siding with demon Lord. It probably have anything to do about him want to become hunters but cant. Remember Karen saying original Takeru have more mana than her but he can't use it? And now he inhabits hero body, it definitely good enough to make him able to use mana.
in addition to that, if he does mantain his free will, he must be kinda pissed that humanity killed their own messiah when he saved them from the demon lord thinking maybe humanity isnt all that cracked up to be. Hell I would side with the demon too if someone did that. That's kinda fucked up.
I don't know if you missed it but she said there is a "greater" evil lurking behind the scenes influincing the minds of the citizen of the OG fantasy land. That's literally why she is asking him to join her. That's like battle shounen intro arc 101 for the first appearing antagonist to join the protag (and die in the process). It's an educated guess and not hard to do in the world of cliche isekais. You just gotta read more.
So far, her words of "greater" evil are no better than a dying demon saying "I'm just the weakest of the four heavenly kings!".
It's not a matter of greater evil, it's a matter of her. She has displayed no inner nobility or goodness that would enable any sort of working relationship.