According to pleco, it's an idiom that directly means a host of demons dancing about, but it's a group of rogues running about
From the context, it seems like she walked into a dance party? "这个群魔乱舞的大厅" would be referring to the horde of people dancing wildly/crazily in the lobby/hall
The deafening sound of music blasted as she entered. She looked vaguely around the room, people were dancing like mad.
群魔乱舞 is meant to be derogatory so the following is right but make it more disapproving. a bunch of degenerates were partying like mad. (strongly derogatory) the scoundrels inside were dancing with abandon (somewhat derogatory) a group of devils were capering (a literal translation) Pick one that best fits the context.
Here the 群魔乱舞 is definitely not used with its original meaning (bad people taking power and going wild doing evil things). The author just wanted to emphasize the chaotic environment. I think with the strong words (deafening, blasted) in the previous part, there's already enough rendering. There's no need to translate word by word.
It depends on the context. The party could be a group of fuerdai drug addicts. Or a sex party. Hmm there are drug/sex party scandals IRL in China so it's not completely impossible that it actually is a bunch of perverts or something similar. There's no context given so I can't assume that it's "just a party" and not an orgy or something more sinister.