Much like Glen Cook's first Black Company book it seems nearly everyone in the Myth universe, primarily Myth 1 because it has such an open end storyline, is trying to play everyone off one another. Now I think the root of the problem (why we cant seem to answer many things related to the head) is we dont have enough information on our decapatated friend. Specifically, how much magical power he has or how many people he has working under him in secret.
I have always believed that Soublighter (because he had more free will then the other fallen lords due to becoming immortal by his own devices) and The Head were in league. Soulblighter has always been powerhungry and resourceful making him a perfect parnter with The Head (who hated Balor most likely for taking his head off) I will speak more of this in a minute.
Now I have a question...do we have information that would back up wether or not The Head became a head after or before Connacht became Balor? It is plausable that The Head (in his regular body form) was a friend of Connacht and Damas. Perhaps The Head was a Lieutenant of Connacht as Damas was. Once the Leveler comes in and Balor is born. Once the Head and Damas most likely tried to destroy Balor or turn him back to the side of the light. In doing this The Head became the The Head at the hand of Balor, thus the head hates Balor. Damas escapes Balor's wrath and goes off to make himself the immortal Soublighter in an attempt to stop Balor.