Right, so I made it up to the Demogorgon and decided to help him. As soon as I leave his room, I'm transported to a very small level filled with some salamanders, snakes and what appears to be red wyvern. I've killed them but then nothing happens.

mods I have installed:
ease of use
samurai kit
no-dungeon

Any thoughts?

I think that what you've described is the "Red Badge" encounter, which is part of Tactics mod. It is triggered when you're outside of Watcher's Keep. If you have killed then you can just CLUA yourself back to the Keep.

yeh thats the Red Badge (or is it Poison Encounter?)

point is its definitely part of the tactics mod