So I decided to play a little challenge with myself on BG1 and I decided that I could have nine reloads throughout the game but they could either be split up among the battle with the demonknight, Sarevok, and the soultaker demon so that would be 3 for each battle OR I could have all nine reloads for horribly low hp rolls like 1's and 2's and 3's but then that would mean NO reloads for any of those difficult encounters mentioned above. Also, that would include perma death for anyone or any reason that you didn't like the outcome of a battle but only three reloads for each battle. Soooooo... I made it all the way up to durlags tower with practically everything else complete with the exception of the ulgoth beard werewolf quest and the last chapters and I decided that I would try and stop the demonknight from the first time you see him in the entrance hall rather than finding him in the lower levels. I had never tried this before and I am not even sure if that means that you don't find him again later. But, his fireballs apparently cannot be stopped with normal spell casting penalty rules and he threw two at my party even though at least four of my shots/hits landed on him before I could even maneuver them out of the way. Now, I had NO IDEA that this could happen finding no mention whatsoever in the manual or anywhere online ever but his fireball permanently killed Jaheira?!?!?!?! I most definitely reloaded and tried again but didn't succeed in killing him only in saving everyone in my party from being fried. So technically, I would only have two reloads left when I face him below. But I have two main questions here, one being.... Does the demonknight reappear in the lower levels after being killed in the entrance hall? The second question is.... Can your party members suffer perma death from a fireball or was that just a weird glitch?

You cannot kill the Demon Knight in the entrance; it is a cut scene. You are completely wasting your time. That brings the answer of yes, he does appear down in the bottom level, because although it's ostensibly the same creature, it's actually a different creature file.

Party members can suffer perma-death from anything that results in enough damage. Perma-death is simply death due to massive damage. If your party member's health goes below -10 that is perma-death. It's not always massive blows, either. It can be something like Disintigrate, Stoned and attacked, etc.

Don't forget Lightning. Got half of my party gibbed by a lucky shot from Silke on my first play through.

Well, thank you both for the confirmation and this is a revelation to me because I have played this game a few times and that has literally never happened before. And I kinda feel like thats pretty cheap on the game designers part being that you can do nothing in that specific instance to kill or stop the demonknight but he can permanently kill your party. I feel like they should have written in an exception making it so that nobody can die permanently from his fireball in only that first encounter since you can do nothing except run out of the way or keep your party sitting outside the room.

Ha yes exactly. Now THAT was ridiculous for them to keep that in the game. Why in the world would they have ever done that and thought yeah the gamers will love not having a chance to defend themselves being forced to reload what fun!

The cut scene only triggers if you take up Ike the huckster's offer of a guided tour in Ulgoth's Beard. Once you get to Durlag's Tower, take (read suffer) his tour, then he tries to sell you a wardstone. That's when the Demon Knight appears -- it's sole purpose it to kill Ike. Well, I guess a cheap huckster with a name like Ike Cascadion Vendar was bound to attract violence, sooner or later. :p

Ah, that explains it. I went to Durlag's Tower before Ulgoth's Beard.