On the subject of the power you are discussing:
I agree with Tedronai, if all this power allows you to do is take sponsor debt with your demon, and spend that debt on temporary powers it is worth [N/A] or [-0].
It is much weaker than modular abilities or a similar power because you are only getting the benefits of your fate points (and to be clear, sponsor debt is equivalent to fate points) for about a scene. If you spent the same fate points (as refresh before the game) on the powers them selves you would have them always.
If your campaign is only likely to have one physical conflict scene where you are going to need powers between each refresh then this is just better than modular abilities. But in my experience this is going to be much worse.
I think the balance issue here is that the upgrade provides, potentially, a *lot* of power - right up to Mythic Speed, Strength, Night Vision, Claws, ect. That's gotta cost more than -1 Refresh. If you had to apply a Refresh cost to Temporary Powers, to be available at any time, what would it be? Otherwise you're just giving people power for free.
You are *NOT* giving people power for free. You are giving someone power in exchange for sponsor debt/fate points. Think about the fact that spending 8 refresh is equivalent to spending 8 fate points at every refresh milestone to gain a certain set of powers with duration of "until the next refresh." If you are making someone pay 6 points of debt/fate points for mythic speed for a scene they are paying for the flexibility of access to all kinds of powers (instead of just the ones they pre-payed their refresh for) with the cost of only having access to those 6 refresh worth of powers for 1 scene every refresh (instead of all the time).
I also agree that it should not allow you to take spell casting powers other than sponsored magic (of a type appropriate to your demon). If your magic comes from this demon, it isn't going to be mortal evocation or thaumaturgy, it is going to be something like hellfire. If you want to be able to do full thaumaturgy or use most evocations, you can create a sponsored magic like soulfire (at a higher cost) that basically allows this.
On the topic of how to model this character:
I kind of like the method of using temporary powers to model this type of character, but i think we can do better (maybe, at least it is fun to try). You mentioned that the more he uses the powers the closer he comes to letting the demon take over. This sounds like something that could be managed with a hunger stress track.
I have not thought of a full solution, but it may be reasonable to consider allowing a character to take a free (or rebated) modular abilities variant (a power costing [-power points] or [+X-power points] or something) that allows them access to [power points] worth of powers on demand. Then after the scene, they take face a hunger check (discipline vs. amount of power used), similar to feeding dependency. In fact this is pretty much the same as just feeding dependency + modular abilities, with feeding dependance re-flavored a bit (and the rebate increased due to inability to feed to remove stress/consequences). Maybe you could accept compels in keeping with the demons nature to buy off the stress at some rate you negotiate (though in this case you may want to just use the temp powers version).
If you wanted to make the powers much bigger while in use but make the after effects much nastier you could consider increasing the rebate (maybe as much as half of the power points attached, though that may be a bit high) and then not allowing a discipline roll. In this case when ever you draw upon your full powers you are likely taking consequences (or loosing access to powers), which could be compelled to make you do nasty stuff.
These ideas are of course not fleshed out, if someone wants to try to hammer out details of a power that does this, besides the easy sponsor debt/temp powers solution I would love to see it.
Aside:
On the topic of compels. A compel can be whatever you want it to be. There is no limit on how minor or major a compel can be. A compel could easily be to go murder that innocent old lady over there if the character being compelled has an aspect that the GM thinks would make them likely to do that (this may be something the table negotiates). The flip side is that a player is under no obligation to accept the compels, they can spent a fate point to get out of them. The only real limitation of what/how often you can compel is how nasty you want to be to a character (and how far they/the rest of the table is willing to go with you while still having fun).
If you make it clear to a player that buying a ton of powers for 8 points of sponsor debt is likely to result in nasty compels i see no problem with the demon compelling that player to go on a murderous rampage, and then when he refuses by spending a fate point escalating until he has to give in. The player chose to make that bargain for his character and knew what the repercussions would be and is likely only playing such a character because the occasional murderous rampage is a complication he is willing to deal with. If you play a demon possessed character and sell it your free will for power, you cant complain when it forces you to kill people. If you didn't want that potential complication you should either have 1) not borrowed more heavily than you can pay for -or- 2) played a less dark character.
That's just my opinion of the subject form the perspective of someone playing a vampire character who has occasionally gone on a feeding frenzy because i chose to draw on a ton of power. I have others in the group who would flip out of their character was forced into murder, luckily they arn't playing a character with a demon in them.
