I'm not so sure about that.
The Hermit text says "When you discard this from play...", which I can interpret in 2 different ways:
1. When you discard the Band of Misfits, it isn't Hermit anymore, so it doesn't have the last part of the text, and therefore isn't trashed and you don't get a Madman.
2. When you discard the Band of Misfits, 2 things tries to happen at the same time: The Hermit text and the turning back to Band of Misfits, and you can therefore choose yourself what happens.
So reading directly from the card texts, I don't see how you must trash it and gain a Madman.
Unless the "When you discard this from play..." actually means instead of discarding it, but that would be inconsistent with other parts of the game (when gain effects happens after the gaining).
But I can easily be mistaking something. Any other opinions or more explanation please?