SH 211 theory: Azazel kidnaps Izzy. Azazel is a Greater Demon. Sebastian’s knowledge apparently centers around Greater Demons. So, IMO, while the others are trying to come up with a plan to save Izzy, Sebastian ACTUALLY saves Izzy - see the fight in the alley - and they all welcome Sebastian as a hero and that’s why nobody ever doubts him.
And nobody realizes that it was actually HE who released Azazel in the first place so that he could play the hero and save the damsel - the one character connected to everybody he needed to charm - and win everyone’s favor.
Sebastian, you’re one sneaky dude!