The smile dancing round George Galloway’s lips was even more gorgeous than usual. The rebel MP had been dubbed member for Baghdad Central by critics who found his backbench cheering for Saddam Hussein offensive, and was eventually slung out of the Labour party. But last week Galloway won a libel action against The Daily Telegraph, which claimed he had received bungs from Saddam after finding some papers in Baghdad.

The paper made an expensive legal error which has cost it the thick end of £1.5m smackers. “That is 5% of the company’s annual profit, just pissed away!” Galloway chortles next day in the Commons. “What a financial disaster!” How his fortunes have reversed. When the Telegraph ran its story that he’d accepted £375,000 (via the United Nations oil-for-food programme) from Iraq as “Saddam’s little helper”, he was slung out of the Labour Party and the future looked bleak. The Telegraph hyped up its story, saying Galloway’s behaviour was tantamount to “treason” — which indeed it might have been if true.

Unfortunately for the Torygraph, documentary evidence its reporter apparently stumbled across in a burnt-out government building in Baghdad would now seem to be fake, or somehow fishy; certainly not corroborated by independent evidence. And inexplicably, the newspaper failed to put its most damaging allegation — that Galloway had been paid by Saddam — to Galloway so that he could defend himself against it. Doh! It was an error that was to cost them dear — as they might have expected. Galloway is a notorious litigant. Indeed, he is to libel battles what an earlier Red Baron was to aerial combat: his successful libel “hits” over the past decade nudge double figures. Now the sharp-suited smoothie is back.

Not only does he tell me it would be “legitimate legally” for natives to murder British soldiers in Iraq, he vows he will use parliamentary privilege in the next three weeks to claim senior figures knew the allegations against him were false, and that this was part of a conspiracy to discredit him.

“The information I have will be devastating for the Telegraph,” he insists in his deep Scottish burr. And proceeds to make all sorts of libellous allegations which cannot be repeated here.

I’m left thinking, yeah, right, George. He is full of these kind of outrageous conspiracy theories. And just as I think it can’t get any more far-fetched he starts insisting that the conspiracy trail leads right back to his old boss, Tony Blair: “He is responsible for far greater deceit than this outrage against me; he could vanish under a rattlesnake while wearing a top hat.”

As for Lord Black and Charles Moore — respectively Telegraph owner and editor when the libel appeared — he does not rule out retaliatory legal action, or libel suits against other newspapers.

However, if the Telegraph is denied leave to appeal, Galloway might just take the money and scarper — being as exhausted as he is exultant: “I have just been across a very high wire.”

Let’s be fair to Galloway. He took a big risk in bringing the action and has claimed that if it failed he would have been not only discredited but homeless and bankrupt, which would have barred him from political office. The stakes were high. He was up the whole of Thursday night after his win plotting his next move, so is unsurprisingly weary when we talk.

Yet he has not forgiven the Telegraph, despite the cash, and hints darkly about a self-flagellatory post-mortem he claims is going on there. He tells me that he would have settled the case by agreeing a cheaper out-of-court settlement with the Barclay brothers, The Daily Telegraph’s new owners, but “this was blocked by the public schoolboys editing the Telegraph, who received a damn good judicial caning”. Ouch.

So what does he plan to do next? He confirms to me that he will stand for his Respect party (a principled crusade for peace or a vanity party for a deranged ego, depending on tastes) against the Blairite stormtrooper Oona King in London’s Bethnal Green and Bow (a seat stuffed with poor Muslim voters who are very anti the Iraq war). Given the constituency’s make-up he might even win. “If you found a bookie in the East End I think he would place me as favourite.”

Charismatic with a once colourful private life, some see Gorgeous, 50, as a sort of left-wing Kilroy. He has certainly known extremes. Raised in a Dundee tenement he now enjoys a Portuguese holiday home with his second wife, a Palestinian scientist (though with customary lefty sensitivities he bridles at suggestions that this is a “villa”, preferring to call it a “cottage”).

Still, there remain unanswered questions. Surely Galloway does not deserve to be feted as a hero when he acted as a high-profile apologist — albeit unpaid — for an evil regime? There is film of him praising Saddam to his face. And rather than the fake documents pointing to a global conspiracy implicating half the statesmen of the western world, might there not be a rather more tawdry, banal explanation for the Telegraph documents? Namely that some middleman or apparatchik persuaded Saddam that Galloway required payment and pocketed the bung himself? To those hacks like me who find life littered, as it were, with cock-ups rather than conspiracies, this is rather more plausible.