Upon seeing the player he initiates the conversation (no way to escape), assuming that only "a tenday" has passed since the betrayal and fall of the Ulcaster School, and wishes to return to life in a body and take revenge on those who've betrayed the school (or their progeny if the player insists its been 300 years.)
Peaceful Resolution: If you went to the Vampiric Wolf's body pile and encountered the fallen adventurer, you should find a "dead body" when looting the dead adventurer just before the vampiric wolf area. Bring that body to Mal-Kalen if you wish to talk to him but avoid combat and set his revenant form loose upon the world. Most of the peaceful conversational options which seek to understand or help the ghost will result in the player being given the option to offer up the dead adventurer's body as a vessel. (The player must specifically use the "I am not your enemy" option, after which the option to offer the dead body to the ghost becomes available.) Any options where the player gets to smart mouth or threaten the ghost will still result in combat.
Combat: Any conversation prior to acquiring the dead body from the adventurer's corpse, will result in combat. Note that Mal-Kalen opens up combat by summoning a Skeleton Warrior (probably a Skeletal Lord as per the AD&D rules), which he follows up by casting Horror and then engaging at melee. His very first attack seems to be some form of Harm spell, as it automatically leaves whomever it hits with around 5HP, regardless of their existing HP prior to being struck. They then have to save vs death. If the main character is struck and fails his or her save, game over.
Treasure: Mal-Kalen carries no treasure of any kind and gives up only 2000 experience points (given the difficulty of the fight, it seems lacking.)