At the latter part of the books, he regains some of his sanity, but there are still scars in his mind.



I'm pretty sure Stannis is holding him prisoner, because he has useful information for him to use. Stannis fully intends on executing him at some point for his "Crimes". His men want Theon to be sacrificed to R'hllor, but his sister Asha is try to get Stannis to free him. She also says, if he is going to execute him, He should do it by his own hand infront of a Weirwood tree, like Lord Eddard Stark would have.



I have no idea what's going to happen, The Winds Of Winter is going to be crazy!