Well excuse me for wondering why two characters on the same side are fighting each other while allowing their enemy, who is standing right there, to overpower and transform. I'm sorry but the subplot while reinforcing the game's themes (which I now understand better thanks to the replies in here, the subtext was much appreciated) had to be taken in a vacuum. The whole "I'm on your side the whole time but I won't tell you until you defeat me in a boss fight, and then I won't help you at all reach your goal because I spent my last seconds fighting you" sequences never work, I wish JRPGs would stop shoving one every now and then.
Might want to spoiler the above, just in case.
Anyway, it's fine if it didn't work for you, but
Ethel was on their side the whole time. This is something that she made clear to Noah, both when she had her comrade relay the information to him, and when she was about to fight them.