Mandalf possession breaks the game
Possessing Mandalf in HoG1 campaign does not lock the camera to his view, but it stays where it was as if you're still in Underlord mode. But it will rotate as if in possession mode while moving the cursor.
Otherwise you control him as you would normally in possession.
When un-possessing him, the possession HUD stays but you lose control over it, the camera locks in its current state (position and orientation), you retain control of Mandalf as if still in possession mode, and you cannot do anything else, forcing the player to alt+f4.
Mandalfs current color doesn't seem to matter.
Unpossessed: (after moving mouse around while possessed)