Storminator said:
You might want to think about some readied actions. In the middle of the fight, if everyone on your team is operating efficiently, he's going to get to his spot in the initiative and your side will have nothing to counter him with. Designate one PC as his minder. Have that PC base his actions on having a possible hostile in the middle of the party.
Only works if they have a definite reason to suspect the betrayal, which is which is the problem. Unless there have been some definite signs of the character wanting to eviscerate party members, there is no reason to be readied on internal hostilities. Of course, you could ready on generic "hostile actions against the party", but that is hard to justify in the middle of a full-on combat encounter unless the enemy is using
invisibility.
If you're feeling nervous about the character's behavior, start by discreetly having the Paladin
detect evil on him. It may not help, as this ability is relatively easy to thwart (
nondetection any one?) as I know from experience (accursed tattoo!

), but if you get a response of evil then you have know something is up. It may just be a case of the DM souping up his character to make him 'cooler' rather than an actual threat to the party.
If you're still concerned, my advice is guard the cleric! The value of
dispel magic against psychic warriors has been mentioned, plus the cleric is the only serious spell caster in your party and is probably the best source of healing. This means he is a big target and if the first thing the psychic warrior does is get violent on the cleric, your chances drop considerably.
As for taking him down... Pound him into the ground. Regardless of buffs and potential lycanthropy, he still has three d4s for hit dice amongst the d8s so his hit points are not going to be that impressive. Hit him until he goes down; the bard's inspire courage ability will help here as will spells like
prayer. He sounds like a melee monster so pump up your ACs and your hit points so you can survive melee against him. Archers should also be very effective, but will need either someone to pin him down in melee away from them or a barrier between them and him. Basically, treat it like a normal encounter after the initial surprise.
Try and invest in silver weapons if you can get away with it and you are concerned about lycanthropy. Use Knowledge (the planes) as an excuse to load up if you need it; Devils are one of the other big nasties that need silver to penetrate their DR. The golf-bag approach may be a pain, but it is a wonderful reason to be prepared.
Lastly, if you feel that the DM is going too far in his efforts to making the combat with his character 'cool' and 'challenging', TELL him. The game is supposed to be enjoyable

.