personality
I love this picture. It sums up Walter's personality perfectly; he's an overconfident, pompous snot, and he knows it. Not only that, he's proud of it. And that's okay, because he's the king of the castle. Life's good when you're king!
b!tch, plz
From the script and various descriptions that are available, we can gather that Walter is arrogant, self-centered, overconfident, and sadistic. A real catch. ^_~ I won't waste time wondering if this is Walter's original personality or one that's evolved over years of being a vampire. Let's just take his personality as it is and have some fun.
root causes
Even if Walter already was a snot when he was turned, years of living as a vampire have molded him into a world-class jerk. Walter is not just any vampire, after all.
Walter is a dark king who rules over Eternal Night. Even among the vampire clan, he is the strongest. He cannot even be scratched by inferior weapons.
Walter is literally invincible; an army of humans could come after him with torches and pitchforks, and he would not be harmed. After years of effortlessly knocking down those who challenged him, it's only natural that Walter would become incredibly confident in his abilities and his undead nature. An overflow of confidence often leads to arrogance and pride. This coupled with impossibly long (un)life gives us a character who is unable to even imagine defeat at the hands of a human, even if he knows that his opponent is dangerous. Thus, Walter walks right into Mathias' trap, maybe even knowing that it is a trap, and is incredulous when he is defeated by Leon.
As a vampire, Walter has eternal "life" and seems to have grown bored with the safety granted by his own invincibility. Though risk is only an illusion, he still enjoys courting danger by riling up the humans he finds so inferior. Simply killing his challengers is no longer fun; plus, I imagine that people got wise to the futility of "slaying the vampire" pretty quickly and stayed out of Walter's way. In order to get a thrill, Walter had to incite someone to action instead of sitting around and waiting.
He's like a child exploring the sadistic pleasure of burning ants with a magnifying glass. What will happen if I turn Rinaldo's daughter? Can he actually kill her? How about if I let him get far enough to challenge me, then send him packing, unharmed? If I listen to this Mathias guy and kidnap that girl, will Leon come? How about if I bite her, will he come back ten times angrier?
You get the idea.
the fall
Like any moralistic good vs. evil story, Lament has the virtuous hero serve impossible justice to the prideful evil overlord. Leon shows up with a weapon that can harm Walter; fine, Walter's still loved by the night. Leon breaks through the Ebony Stone's barrier; fine, Walter will fight and win anyway. Leon defeats Walter; fine, Walter will come back to "life" later and return the favor. Only when Death shows up does Walter realize that he has truly lost everything; the stone, the castle, his life, and his soul.
It's easy to say that Walter should have seen it coming, but consider his position. He was invincible, the strongest, and had seen it proven over the years. I imagine that it would be very hard to remain cautious or humble after seeing proof of my own invulnerability. It's okay to play with fire if you can't be burned, isn't it?
Maybe I'm a sympathetic sucker.