Hate those Ethereals - always panic or possess my crew as soon as I land near them. Always bad to encounter before psionics have been developed.
However...I realised that when you possess another creature, you can't access their inventory. Same with the aliens. Therefore a way to defeat the Ethereals I've found is for the XCOM units to drop their weapon at the end of each turn.
That way, if that XCOM unit is possessed, the aliens can't do anything with them, except perhaps make them wander about a bit. And if any unit goes beserk, they can't harm their comrades. This is really useful against Ethereals, because they rely on mental attacks more than weapon attacks, so you can get away with it more easily than if you meet Sectoids. The only thing is, to use that strategy, you need to remember to pick up the weapons before moving again.
