Here's one possible solution that is potentially cool and uses all the elements you've drummed up, as well as making good on PC decisions. Just throwing it out there for consideration.
The Inquisition is, obviously, pissed. Thirty dead brothers! "We have to find those no good murdering PCs"... scry on them. At this opportune moment, the Inquisition witnesses the conversation between the Elf PC and the demon queen. Not only do they hear her admit to the murder/frame job, but they see the elf take the moral high ground, or, if by some chance he does agree to her conditions, they observe that, and admire the sacrifice he is making for his friends.
Run the combat, and run it tough, but not impossible (tweak as necessary). There are two scenarios: PCs fight alone, or PCs fight with the Queen's turncoat forces. The former means the Elf chose the moral high ground, and the latter means he sacrificed himself to give his party the advantage. Either way, see if the PCs can win the combat under their own power. If they do, great. Alternatively, if it's looking grim, have the Inquisition show up (probably frightening the PCs, as they figure the Inquisition is out for their blood) and help the PCs. Their motive? The PCs are being framed, manipulated, and hunted by no shortage of evil forces... they should help. It could make for a good moment though, in any scenario:
1. The PCs win a tough fight against all. The Inquisition shows up, scaring the pants off them (another huge combat!? Ahh!), only to divulge that they were coming to help them, but they're so fricken cool, they obviously didn't need help, and would they please come to the funerals of the dead brothers?
2. The PCs win a tough fight with the help of the Queen's forces. The Elf, sadly, now has to go live with the demon-Queen. The Inquisition shows up, initially scaring the pants off them, but helps the PCs destroy the Queen and her forces. No Consorthood for the Elf. Yay.
3. The PCs are losing a tough fight. The Inquisition shows up, making them think they're even more doomed than they were before. But, like all the other scenarios, they help them to destroy all the evil folks because the PCs are obviously trying to do the right thing.
I hope I've understood all your background enough. Let us know how it turns out.
~Percy.