John Simpson in Libya: Gaddafi was mad, bad and dangerous to know

Brown teeth flashed in a genuine grin, and one of them shouted: "Engilisi very good!"

Behind him, on a small roadside obelisk which might once have carried a picture of Col Muammar Gaddafi, hung a long-hidden red, green and black banner decorated with a silver star and crescent moon. It was the national flag of the old kingdom of Libya, which was overthrown in the coup launched on Sept 1 1969 by the young Colonel. Now, after 41 years in hiding, the flag is back. And the Colonel is being overthrown.

It was very much like being back in the revolutionary year of 1989, driving across the Yugoslav/Romanian border immediately after Ceausescu's fall from power: the air of improvisation, the sheer unexpected delight at being free of a repressive regime which had lasted so long that everyone thought it was permanent.

And there was the symbolism of the flag. In Romania they cut the Communist symbols out, so the old tricolor flew everywhere with a jagged hole in its centre; here, they brought the old flag out of hiding places and hung them up.

It was an act of restitution, a symbolic eradication of everything Col Gaddafi's crazy rule has tried to establish. But, as in Ceausescu's Romania, it will take decades to restore the immense waste, and the loss and outright theft of the nation's patrimony.

Libya is an empty country: an enormous section of North Africa containing only six million people. Divide the trillions which the country's oil had produced since the early 1970s by six million and everyone here should be a multi-millionaire. Not so. Libya may not be dirt poor like Sudan or Yemen, but the comfortable capitalism of Morocco, Tunisia and Egypt is entirely missing. Even Algeria seems richer.

The stony desert is dotted with roofless, uncompleted houses. In the occasional small towns along the road the solitary shop will sell only the cheapest Chinese plastic goods and the kind of low-quality comestibles which are dumped on poor countries. The televisions that locals crowd around are elderly and the picture quality is bad.

There has inevitably been enormous corruption in Gaddafi's Libya: a small, impenetrable elite and a closed system always ensure that. But Libya has been cursed with his absurdity and foolishness as well. In the 1980s he abolished shops, and seriously considered abolishing money as well. The market economy, the cash nexus, was to be destroyed.

Those were the days of the Little Green Book and the Great SPLAJ, as it was officially known: the Socialist People's Libyan Arab Jamahiriya, or republic. Economic activity virtually collapsed, and the vast hypermarkets which the Great SPLAJ ordained for the outskirts of every town and village stayed stubbornly empty. A genuine fear of starvation briefly caught hold, in a country that notionally had one of the highest GDPs on earth. After that the Little Green Book, a largely illiterate set of economic ideas, half Mao and half Pol Pot, was forgotten.

On our journey east to Benghazi we saw the effects of all this: the reasonably well-educated but wholly unemployed young men discussing impractical schemes for their revolution, the nervous older men, glad at the thought they might be free of Col Gaddafi at last, yet afraid he might return.

Yet Ceausescu's Romania had these things too. In April 1989 I toured round it and came to the conclusion that the very instinct for liberty had been crushed out of the population; yet eight months later they chased Ceausescu and his Lady Macbeth-like wife out of power and riddled them with bullets. You don't, I learnt then, eradicate the desire for freedom that easily.

Since my first visit to Libya in 1978, when Col Gaddafi had the aura of revolutionary chic about him, I have been back here nine times: sometimes a welcome guest, sometimes a pariah to be held in my hotel room for days at a time.

Whenever I met him, there was never any doubt that his mind was deeply disturbed. He could be pleasant, in a distant, dismissive kind of way, but he never made eye-contact.

Once, when I sat in his famous multicoloured tent, he threw his head back and laughed uproariously every time I asked him a question; then brought his head down again to look at me without the trace of even a smile. The effect was so disturbing that the producer and I considered editing out the manic laughter. Yet that, aside from the ethical implications, made him seem even weirder. The laughter stayed, and the viewers were bemused.

In August 1980 he summoned some of the world's best-known journalists to a press conference, kept them waiting for days, then appeared dressed like Sherlock Holmes in a Burberry ulster. He wandered through the crowd, greeting people, though again without looking them in the eye. At the other end of the room the door opened and he slipped through it. In the silence which fell we could hear the key turn in the lock. That was it: there would be no press conference after all.

In 1998, when the outside world started to demand that Libya deliver the men accused of carrying out the Lockerbie bombing, I was again invited to Tripoli. Col Gaddafi appeared wearing a straw trilby-like hat, sideways on. Sitting down, he flicked away the flies with a whisk in a gesture that looked as though he were ritually whipping himself. Throughout our 40-minute interview he would lift himself out of his chair and break wind, loudly enough to be heard on the soundtrack. When I wrote about it afterwards for this newspaper, the then editor gave the article the headline "Warm Wind Of Compromise Blows From Gaddafi". But there was a price to be paid for committing lèse-majesté. I was never given another visa to Libya, and near my home in London I was followed, screamed at and attacked by a man of Arab appearance.

With hindsight, it seems unwise of Tony Blair to have tried to present Col Gaddafi as a statesman with whom Britain should do business. In Benghazi today, where leading figures in the resistance have British links, there is a baffled anger that a figure of international prominence should have accorded Col Gaddafi so much respect.

There is of course a parallel: Jim Callaghan twisting the Queen's arm back in 1978 to award Nicolae Ceausescu an honorary knighthood. Departures from strict principle usually punish the expediency of the moment.

When the revolution came in Romania, literally no one supported the Ceausescus. Even their bodyguards abandoned them. Col Gaddafi still has the backing, reluctant or otherwise, of several thousand soldiers and a similar number of political followers in Tripoli. Elsewhere, though, his support has completely evaporated; there are reports that his own tribe has disowned him. But the disturbing possibility of a Götterdämmerung in his bunker, his sons around him, remains.

That, certainly, is the expectation of one man who has spent almost his entire life in Col Gaddafi's service. Gen Abdel Fatteh Younis, who until last Tuesday was Libya's interior minister and the commander of its special forces, has known Col Gaddafi since 1964. Gen Younis was involved in the coup five years later, and has been part of the regime ever since. He now supports the revolution, having (he says) been converted by so much bloodshed, and believes Col Gaddafi will die fighting. He is also certain that the Colonel is mentally unhinged. "He takes very dangerous decisions in a state of anger," he told me. "It's impossible to think he's completely sane."

In 1998 Col Gaddafi published Escape to Hell and Other Stories, a volume of remarkably gloomy short stories. One describes him wandering the streets being pestered by people who want him to provide them with things – radios, televisions, washing machines and (more oddly) cats or dogs. He calls this lonely figure "a poor benighted Bedouin".

Libya as it is today, poverty-stricken, churned up by violence, disregarded in the world at large except for its oil, has been created in Col Gaddafi's own weird image. For 41 years a particularly nasty secret police has kept him in power. Characters like Gen Younis were prepared to go along with him because it was worth their while, and because it was too dangerous to go against him.

Now Col Gaddafi's short story has come true. In my hotel in Benghazi they put posters of him on the floor for people to walk on. Power and strength are being stripped away from him, day by day, and he is little more than the poor benighted Bedouin of his own imaginings.

The tragedy is that the exercise of his fantasies has damaged this rich, biddable, pleasant country for decades to come.

John Simpson is the BBC's World Affairs Editor.