1) He decided to kill Nera.
2) She turned out to be a sorceress, and Hostor got burned when he ran into her defenses.
3) That's when the Possessed one was waiting for him.
Hostor isn't a Paladin because he had business (Non-Disclosure) near Nera's room, while the Paladin, in turn, used her Non-Disclosure on Kyle and went into his shower.
Personally, I think it's **NNV** (Not Necessarily Villain). And yes, Arandor is actively promoting the idea that Kyle is a maniac... or maybe he's a thief himself, or a mafia/man disguised as a thief.