Being serious for a moment though, there really isn't a good solution to the demon/human problem.
If, as the villagers want, there were some way to just shut of malicium production on the demons to turn them 'human', that would simply be like how in the past people did all sorts of horrible things to make homosexuals 'normal'. But if you let them be, the demons simply living next to humans could be killing them.
The closest solution I can think of is to have three zones. Human only, Demon only, and mixed. Then you need free, and freely available, training for any demon that wants it on how to control their malicium production. Humans get training on detecting and tolerating malicium so they can tell a demon to the effect of "yo bro, you're leaking" without being accusatory or confrontational. And of course both humans and demons need training on getting along, first of all. The human only and demon only zones would be for the people who don't have the aptitude to finish the required training. No shame, some people just aren't born with certain abilities.