Maybe I was doing something wrong, but I cycled through the Possessed Dwarf more than a dozen times -- taking him down to 1HP with resist death and healing him back up before starting again -- and I never got the quest credit prior to breaking the last pillar. When I did finally break it, the demon emerged at full HP. Since he kept possessing my guys through normal combat, I reloaded it and had my summoner spawn a buffed up incarnate in the pit, moved everyone else back to the entrance to avoid becoming possessed, and then let my Incarnate break the last pillar and face-tank the demon down with the help of the now-exorcised dwarf. It wasn't too hard and the dwarf seemed immune to repossession, so after a few rounds the demon was dead and we got the quest XP.
The other method(s) listed here might work -- or have worked in prior builds? -- but knocking down or chain-stunning the demon still resulted in one of my characters being possessed, and it was getting super tedious having to then drive it out of one of my characters and start over again. Thankfully going the summoner route really made this easy, so I'm assuming there's a ranged component to the demonic possession "ability" that you'll otherwise get trolled with if you hang around and duke it out conventionally.
YMMV, but does anyone know if either A) I was doing something wrong with the initial strategy, or B) if that doesn't actually work like that anymore?
