I'm not aware of his location, but the champion seemed a little anxious to leave him by himself for too long. [After what had happened, he was sure that was for good reason, but perhaps not just in the way most people would think. If he had heard most of Varric's story right, about Kirkwall, there was more to the mage than just his affinity for blowing up religious buildings and starting wars to try and save the majority.]

But, no. Varric was questioned by the Seekers for some time before he was released. If he was possessed, I doubt he would still be alive. Dwarves aren't really very susceptible to that sort anyways from what i've experienced. And if he can get Commander Cullen stark naked in a game of Wicked Grace, i'm sure that he's still the man you know. At least if how he told that story is any dead give away.