I'm still unsure of what I should do. I'd like to hear what you guys did, and what you think.

I spared him its pretty obvious that hes under the influence of an insanely powerful dragon priest.

My Ancient dragonborn flipped out on him before he had a chance to speak

Spared him. Not his fault he got corrupted by one of the more powerful Nordic heroes under the influence of Hermaeus Mora.

Although you can justify killing him by ending his guilt or any trauma he might have from knowing he killed so many people.