I think this word demonstrates that "pepo" is not usefully translated as "demon", since "the place of demons" is hardly a likely literal translation of the Swahili word for "heaven".
Pepo is any kind of spirit, both good and bad, but also wind or breeze. So peponi would be something like the spiritual realm, or heaven. In Christianity this would be where the good spirits are, but not all religions differentiate so clearly between good and bad, and traditional African religions are among those. I'm by no means an expert, but at least this should give some insight.
Mapepo mbaya is suppose to mean evil spirit. It was poor for them to say mapepo means demon.