Hmm, after watching the episodes thru Season 2, Episode 7 it seems that Theon is quite crazy as well ...
I thought he'd be more of the good ones.
Theon isn't crazy, he's human. You don't have to be crazy to do terrible things to other human beings. Theon is isolated and desperate for acceptance - he's been a hostage for most of his life and so wasn't fully accepted by the Starks, his own father let him be taken and then treated him like garbage when he returned, and his own people don't respect him. Since he can't really go back to the Starks, he has to try to get the acceptance of his own people. Unfortunately his people happen to respect leaders with a brutal streak.
Yeah, that wasn't what I was expecting from him either. I don't know what happens to him, but I've heard the audience will end up feeling sorry for the guy. I'm not sure how that's possible after what he does in season 2.
I won't spoil anything for you, but since Theon isn't a sociopath it's actually possible to empathize with him even when he's done terrible things. He's leagues away from being the worst monster in the series.