He wasn't possessed. He despaired, and wanted to goad the Imperial Fists chap into killing him.
I think the sons of the Emperor were real, as of the time of the writing, but later fluff may have changed that. I know that outside of the series, I have never heard a thing about the Sensei. I'm pretty sure that at some point during third edition, the Illuminati conspiracy, and the Star Child theory were revealed to have been propogated by Tzeentech.