I've heard that the only way to 'legally' obtain the Helm of Opposite Alignment is by defeating the Demonknight the first time it appears, ie. when it materialises and starts slinging fireballs at the tourists. Well, I've tried but I couldn't kill him with spells cast both on my party (haste etc) and on him (to no effect - he 'saves' effectively against ALL spells; only Magic Missile seems to damage him), nor with melee/ranged attacks. Only those Critical hits do him damage, and they're supposed to in the first place!
Is the helm really found on him? If not, then where? Or maybe I'm just looking for the pot of gold at the end of the rainbow...

No, that about killing deamon knight there is bull. You can't kill him when he first shows up, it's scripted that way.
I really don't remember where did I find that helmet (if I even did, it's possible it can only be created from the console).
The easiest way is to create it from the console, but I have no idea what you'd do with it. If you really want to have your alignment changed use an editor. Having a helm for that is kinda silly. Besides, it'll only work on fighter figures (obviously).

Yes, I do know that you can create/hack it into existence via cheat-codes, and I've also learnt how to edit my own alignment from another helpful guy from the TGE forum, but (call me silly if you will :) ), I would really like to know whether you can legally obtain it in the game. It is for those evil-aligned characters (especially Viconia and Edwin, oops, forget the latter!) which I'm planning to include in my do-good party when I replay BG (as soon as I complete Tales).
The whole point, to put it bluntly, is whether I can go through the game with 20 rep without my evil/good party combo breaking up halfway every so often. If it's simple not obtainable, then I guess I'll just have to pick Puffguts' own pocket!

Where abouts do you meet this demon bloke?

Deamon Knight is one of the figures from the BG expansion, Tales of the Sword Coast.
Shadow, um especially Viconia & Edwin?
Helmet and pure magic users don't mix, remember?

Oh well...what level do you start at in BG2?

Sorry 'bout the delay, I'm usually only around on week-ends.
Taluntain: I recalled that mages can't use helms when I was typing, that's why I added "forget the latter" directly afterwards.
Sniper: You start with 89 000 exp points (refer to the table on Levels for the specific class level); 161 000 if you're importing your character from BG1 with Tales of the Sword Coast expansion pack.

I was wondering why i couln't exceed 89,000 exp points! Nuts! Only another 1000 and MAjikus would have reached level 8!