What's the deal with Scruff McDuff?

[mad rad rat lad]

Is it ever explained in the lore why he is as loopy as he is?

[Mr.America]

I find him more interesting than leningrast at least... But I have no idea about his backstory. I think however that he's actually from drangleic, not like the others who wandered in.
Edit: After some googling, it appears that noone has tried to figure out who this guy is.
Edit2: There's some stuff on reddit http://www.reddit.com/r/DarkSouls2/comments/2c0s7h/lets_talk_about_the_other_area_of_the_dlc_long/

Is every character Aldia now? Personally I think McDuff is the Blacksmith (Llewellyn) that chancellor Wellager was ordered to contract, no matter what.
Geisteel was a precious alloy created in the eastern land of Mirrah, its composition long kept secret from foreign lands.
That is, until Chancellor Wellager was ordered by King Vendrick to grant the gifted blacksmith Llewellyn a lifetime contract, whatever the cost, in order to introduce the rare alloy to Drangleic.
Mcduff does not mention his homeland or anything close to it. all we know is that he longs for 'flames'. And what better place for flames than Drangleic Castle? I imagine that the blacksmith must have been close to Vendrick during his time at the castle, causing the affection for fire. But then the question is, why is he locked up in the Lost Bastille?
Looking at the description that i put above again, it says whatever the cost and lifetime contract, which implies that they didn't want to lose him. which would answer why he is locked up with tools to make and alter weapons, shields and armour. But it is also implied that he also stayed at Drangleic Castle, why would he be moved? I think it's to keep him safe from Nashandra. He's a master at infusing weapons, including infusing with dark. she may have wanted to use his skills in some way, although I do not know how as of now.
tl;dr
Mcduff is actually Llewellyn the creator of geisteel.

Well ... Llewellyn can be a first name. Llewellyn McDuff, maybe? Both names are from nearby origins, too.
Incidently, McDuff means "Dark Son"
permalinkparent

This is good stuff. Note that I myself dont believe he is Aldia, i am merely raising the question of whether they are related.
There's not a lot to actually link McDuff to anyone with certainty given how little he speaks, but your theory looks solid and it may be correct. I had never given a lot of attention to McDuff to be honest.
Regardless of who he rally is, it is strange to me how close their own sayings of the flame are in terms of phonetics, it makes me wonder if they at least knew each other. Could literally just be a coincidence though.

However, I don't think he was locked in to be protected, rather, he offended someone powerfull in the royal court and was imprisoned in the bastille. They did want him to continue to work, because geisteel was so rare and of good quality, so they gave him a bonfire to rest and a smithee to work in.

[Hunubul]

I think he is just an undead, who has some sanity left because he wants the ember so bad. His backstory would be interesting tho. Hopefully they'll add something in the patch/new version.

[Bottom of the Well]

Duffman stopped drinking and started to suffer from his failing liver so he went to the land of the undead to try and live.

[Smufius]

I think he's just hollowing slowly after being walled inside his workshop. He used to handle the magical embers and was very fond of them, but now he's lost them and has begun hollowing. Just to remind you, hollowing happens when you lose hope or something that drives you forward. You can give him the ember, but it won't revert his hollowing. He's just as loopy, but still able to do his job.

Dunno why he was locked/walled inside his workshop, though. Maybe someone feared the things he could create with the embers or that he got too power-hungry.