I have finished the game already and it seems that Damian is dead, like completely. DOS2 likely takes place after the return of Lucian from his imprisonment in another dimension after which he led the assault on Damian and finished him. It's described in some books and also depicted in some paintings in Arx. So his mortality at the end doesn't mean much, there is no threat from demons if you killed the Doctor (who, btw, appears to be their leader in Rivellon, further showing that Damian is dead).
Also, I sided with Lucian at the end and sacrificed my Source, and the ending was pretty much what he has described. He returned to the world and demanded peace, and all conflicts were stopped.
