Rangerwickett, perhaps part of the problem is a lack of communication between you and Ted.
I get the impression that Ted, the player, has an intense dislike of this particular NPC Shaaladel. You said your intention was to reward Ted by giving him an opportunity to defeat Shaaladel since he's a bad guy now.
Here's where I think the problem with communication comes in: You set up this Shaaladel as a "good guy" the first time around, which made him difficult to bring to battle for the "good guys". Now, the second time around, he's one of the big 8 bad guys... but the 1st time the PC's meet him, he's a major general in charge of some fairly significant force and the PC's are essentially captured and interrogated.
Basically, Ted's back where he least wants to be... more or less helpless to do anything about this guy Shaaladel. And Shaaladel's worse than he used to be. I can certainly understand why Ted would feel frustrated and angry.
Perhaps you should talk to Ted and explain that your idea is for his character to defeat Shaaladel. You will probably need to give him some assurance that there WILL such an opportunity to fight this guy at some point in the campaign.
It's entirely possible that Ted would have a lot more fun (and play more reasonably in-character) if the NPC who he really hates isn't part of the game. I have to admit from time to time I've encountered an NPC or monster created by the DM who I really can't stand. When this happens, I don't mind defeating them, but I much prefer permenant solutions (i.e. This NPC of monster is killed without hope of resurrection, or the offending creature is removed entirely from the campaign). I'm willing to bet that there are other NPC villains that Ted actually enjoys opposing. What might be best is to find out what Ted would have more fun with... finally getting his chance against Shaaledel, or dealing with someone else altogether.
When folks are enjoying themselves, they're much more likely to behave in a reasonable fashion. This is also true for role-playing. Trying to put myself in Ted's shoes, I can see myself becoming so frustrated that I just want OUT of the situation, even if it means dying, then so be it.