A Tenkar's Tavern post encouraged a lot of people to talk about alignment again. But I want to talk about demons. Specifically, the kind of demons that aren't really demons.
Occasionally, people will mention how some old swords & sorcery stories do not have real gods, but have various monsters that are worshipped as gods. There's a giant snake with fangs that drip a paralytic poison that can also trigger astral projection. It lives in a horrible temple, tended by crazed priests who kidnap children to feed to it. The priests harvest the venom and use it for their own purposes. The priests believe the snake is a god, or maybe they just tell worshippers this so that no one tries to stop their nefarious activities. The snake, though, might not be intelligent or even aware of its followers.
What I haven't seen anyone discuss is the fact that you can handle demons the same way. They could just be really weird mutant animals, perhaps left over from genetic experimentation after an apocalypse (as are the demons in Thundarr.) Or perhaps each demon is created by conjuration magic, called forth from a sorcerer's id, as in Roger Zelazny's Wizardworld novels. Perhaps demons are former wizards who either transformed themselves to achieve immortality and power, as would a lich, or were transformed against their will by dabbling in dark magic. Perhaps they are space aliens, as is suggested in some Clark Ashton Smith stories, or in the Cthulhu Mythos.
The reason why I was prompted to write about monster demons by Erik Tenkar's post asking whether alignment is even necessary is because alignment really isn't necessary if you are using that kind of demon. If a demon is not really supernatural, or is only supernatural in the sense of having innate magical powers, then there is no need to link them to a specific alignment, or even to each other. Each may be a unique entity with individual needs, goals and desires. In contrast, if you want demons to be part of a supernatural menace threatening the world as part of some cosmic battle, then I think you need alignment, though what form of alignment is really up to you. If demons can be banished from this world, if holy water has an effect on them, and if PCs can choose to join demons in exchange for power or oppose their plans, then you need to be able to tag characters to show which side they are on.
It's a matter of what kind of fantasy feel you are looking for. Epic, horrific, or picaresque?