[[WMG:The Medicine Seller is a benevolent mononoke.]]
He(or his family, or his girlfriend, or his dog, or whatever) was killed by a mononoke, and then perhaps the spirit of the Sword of Exorcism clinged onto his desire for vengeance, and now he wanders Japan, hunting down mononoke. I have three reasons for believing this:
* He has crazy powers that no normal human should have.
* He never ages. The final arc is set in the 1920s, while all the previous ones were set in the Edo Period.
* In the final scene of the final arc, he announces that he will continue to hunt mononoke as long as they exist... and then his sword does the teeth thing, something that it usually only does when the truth, form or regret of a mononoke is discovered, suggesting that this is the Medicine Seller's Regret.
** Of note, this can also be interpreted as his Reason (depending on what particular Fansub you are watching, "katachi, matoko, kotowari" are translated either as "Truth/Form/Regret" or "Shape/Truth/Reason". (In Japanese, technically all three words can be translated as "truth"--"truth of form", "truth as it is", and "truth of motivation" respectively.)
*** A bit of secondary evidence pointing to "Reason" or (more accurately) "Motivation" as well--in the (nonrelated) ''BreathOfFire IV'', particularly the manga, dragons are described as the ''kotowari'' of the world (the Something-Or-Other FanTranslation goes with "truth" with the translator's note "Sort of a truth of the world", whilst the official game translation changes this to describing dragons as the force that moves the world). This is what we get for Japanese having different words for different varieties of "Truthiness" that are not directly translatable in English.
** The Noppera-Bo arc suggested that the real Mononoke behind it is The Medicine Seller.
*** Ochou was the real mononoke in that arc. The mononoke wearing a Noh mask was implied to be an illusion created by the Medicine Seller to help free her.
*** And this could be quite plausible; among other things, there ''is'' such a thing as "shamanic ''noh''" theatre (specifically done to cast out such things as mononoke and other Troublesome Spirits) and (as the previous Troper noted) the Mononoke In The Mask even explicitly makes reference to being an actor.
*** And even the Medicine Seller makes reference to essentially this in a roundabout way--after facing the Mononoke In A Mask after some NightmareFuel involving having his ''face'' stolen, he even explicitly notes that "I can make any face as my own if I need to". Which is pretty much the entire principle of using masks in shamanic work. (This Troper's opinion: the "Nopperabou" arc is basically a shamanic ''noh'' performance seen through Ochou's eyes.)
*** A variant theory is that [[http://community.livejournal.com/mononoke_anime/88336.html#cutid1 the entire events of "Nopperabou" occured primarily in Ochou's mindscape and the masked mononoke was a facet of Ochou's hopes and dreams for escape]]. (This seems to be the primary opposition theory, in fact.)
* Getting back to the original subject, the Medicine Seller (in addition to the Immortal, Empowered, Motivated bits) even has subtle hints in his appearance (particularly PointedEars, Fangs, and being very pale) that he is not human. His facial markings in his "default form" also resemble those used for supernatural beings, particularly gods and kitsune (fox spirits) in ''kabuki'' theatre; [[http://kaigou.livejournal.com/517043.html MUCH more in-depth writeup here]]. At least one interpretation [[http://kaigou.livejournal.com/515720.html specifically notes that red around the eyes denotes Supernatural Beings]]
** His dress is also a giveaway; in the same link above, it's noted that the Medicine Seller has the trappings not of a merchant (a very low-class caste in Edo-era Japan) but trappings pointing to the imperial if not the overtly [[PhysicalGod divine]]. Specifically, he has three facsimiles of the Japanese imperial regalia, denoting him on the ''low'' end as a Being Of High Rank.
*** And going back to the clothing imagery, it would appear that the Medicine Seller [[http://kaigou.livejournal.com/516356.html has bits about his clothing that scream priestly femininity]] to Those In The Know. (This, too, is possible Shamanic Imagery.)
* At least one fan interpretation is that the Medicine Seller may [[http://kaigou.livejournal.com/517043.html be effectively a mononoke or demon who converted to Buddhism, or possibly a protector Buddha]]; there ''is'' a stonking lot of Buddhist imagery in the series as well as Taoist.
* There has also been an alternate theory that the Medicine Seller is less a mononoke and is rather ridden/possessed by one--specifically his alter-ego. Ironically, a lot of this speculation has come about specifically because of the Nopperabou arc (and the various theories surrounding this).
* For that matter...he does very little actual medicine selling in the series; the only time he's shown doing it at all, in fact, is [[http://kaigou.livejournal.com/519812.html essentially attempting to sell herbal Viagra in the "Bakeneko" arc of ''Ayakashi'']]. One gets the distinct impression, in fact, that he's simply posing as a medicine seller as a form of Social Engineering...
* Another theory that all what is going on in there is a Kabuki play and Medicine Seller has a real-life prototype kabuki actor Mizuki Tatsunosuke (born at 17th century) who was famous not only for his talent but also for making lilac head cloths a cool fashion trend back at his time. Mizuki left stage at age of 30. So make a guess who could he become...)))
* Regarding the Medicine Seller's benevolence--there has been a very good argument made that [[http://kaigou.livejournal.com/514932.html the Medicine Seller is actually acting as an "ayakashi's advocate"]]--that is, he really doesn't give a damn for the ''humans'', but rather works solely to sever the fetters (created by humans) that have caused an ayakashi to "go mononoke". In other words, there is a very plausible argument that the Medicine Seller's entire ''purpose'' in the world is to ShootTheDog.
[[WMG:The Zashiki Warashi arc takes place in Nagasaki.]]
It potentially explains the coloration of the characters. Shino is the product of Dutch liaisons with Japanese women, who could have children with recessive blonde/blue-eye traits that, if two of these children had children themselves, ''might'' results in a blonde-haired, blue-eyed Japanese girl. Some of Tokuji's ancestors would have been black or South Indian slaves, who European traders sometimes brought with them. A bit of a stretch, true, but possible.
[[WMG: The Zashiki Warashi Arc might have ended with Shino pregnant with the mononoke]]
At the end of the episode, she starts bleeding , which might suggest that the innkeeper and/or the mononoke might have terminated her pregnancy. She's tied by the red string of fate to her child (Represented by the sole doll), and surrounded by many other dolls with unattached red strings. Her child starts cracking (Miscarriage), states she can't be its mother, and is then attached to the mononoke. Her stomach is much smaller than before, and she might have willingly terminated, or accepted her original child's death, because that means she would no longer be attached to her lover.
[[WMG: The Medicine Seller Only Exists When and Where a Mononoke Exists]]
Maybe he only appears some time after a mononoke is formed, in the same area. Or on a mode of transportation traveling to the mononoke's domain (since, for instance, he cannot materialize in the middle of the ocean).