They are definitely still working together. Red is using him as a mole. If not it would be bland writing. I hope they have more planned then just a "Ah Ha! he is working with Reddington. Fooled you!". Shock us writers! not Liz shock us, but something good.
WIth that said. I found the beginning to be a bit off. Why would a serial killer not just keep a trophy with him, but bring it to his love affair's house which is (not just any judge, but his judge), then flop it in the nightstand in her bedroom? Later in In the episode the character played up his intelligence by showing off his family's money to the "almost" next victim. So why is he carrying damning evidence around with him?