You don't know what you are talking about. Or rather, you are taking a protestant stance of
sola scriptura(that the only reliable source of religious knowledge is scripture). Satan is very well defined, not only he is quite frequently mentioned in the Bible, but there is a wealth of Christian and Judaic tradition concerning him. This wikipedia page is a nice start:
http://en.wikipedia.org/wiki/Christian_teaching_about_the_Devil
Right. According to the Gnostics, the Orthodoxy followed (mistakenly) the demiurge.
No, according to the Gnostics the Orthodoxy didn't make that distinction. They invented that division between the god of the OT and NT in order to justify their particular dualistic views(that all the world and creation is evil and corrupt, and originated in an evil and lower god), and that obviously went more and more out of control.
For the Catholic understanding of the Cathars, this is a good read:
http://www.ewtn.com/library/HOMELIBR/HERESY5.TXT
As for why they were insane, I would mention that their rejection of everything material as evil is a good example. From the wikipedia page on Catharism:
As a consequence of their rejection of oaths, Cathars also rejected marriage vows. Sexual intercourse between the sexes and reproduction was viewed as a moral evil to be avoided. Their moral doctrine was based on the belief that the material world including the flesh was intrinsically evil as stemming from the evil principle or god.[23] Such was the situation that in order for a reputed Cathar to have the charge of heresy against him dismissed he needed only to show that he was legally married.
They were obviously quite suicidal. Not only did they avoid procreation, as they also indulged in euthanasia, suicide, abortion and other very ungodly practices that are strangely anacronistic.
And these are just the well documented and proven practices of their religion(from the few documents written by Cathars themselves that survive), there are many accusations that are considered defamatory now but that are probably true. One accusation made by Bernardo de Gui(and which sounds plausible with all things considered) is that homossexuality was tolerated among them as something preferable to marital relations, as a means of avoiding procreation. They were frequently depicted as "sodomites" in later literature.
They were also very unorthodox in their beliefs about ressurection, knowledge as the only source of salvation(as opposed to faith and good works), and else.
Many later occult tradition taking a gnostic theology chose to comprehend them under a very non-historical light. For instance, they are often portrayed as very tolerant and meek(which is partially true, they were vegetarians and oficially shunned warfare, although they armed themselves and fought ferociously when the push came to shove), and as "enlightened" alternative to the Church(which they consider evil). They were also perceived as proto-protestants by many latter chroniclers(something that is partially true also, they had a much simpler hierarchy and rejected apostolic authority). As a Catholic, the accusation that their beliefs were downright satanical makes absolute sense, and it should make sense to anyone that accepts orthodox theology. But obviously, I can understand how an anti-Christian might perceive them positively, specially considering the fact that they were massacred quite brutally. That always tends to cause unwarranted sympathy.