I posted a longer version of this q but it got deleted as spoiler.

If Kematu is not the Bad Guy, why is he in a cave full of bandits?

Actually when I chose Saadia, and I went to Swindler's Den and yes, there are tons of BANDITS, I killed i guess 20 of them there and the rest of the alik'r warriors, but the chief bandit was killed by the alik'r warriors when I came at the end of the dungeon. So I guess they really are the good guys here, well for me.

Quest balance.
Side with Saadia -> In cave behind bandits. You can kill him there w/o gaining a Kill-On-Sight level bounty.
Side with Kematu -> In Rorikstead in the inn. You don't have to clear a cave to talk to him.

So you see the question is wrong. Where he is depends upon who you side with initially. (You still have time to change your mind.)

As the above poster said, he will be at Rorikstead until you talk with the prisoner in Whiterun. After that he moves to the cave with his men.

As for who is right or wrong, you only get their words on that so it is up to you who you choose to believe and side with.

The one thing you do learn is that Kematu is not really part of the equation. If you complete the quest for him and then kill her before he leaves, he will have extra dialogue showing that he is upset about her death. Kematu is just a bounty hunter chasing gold.

The real question of this quest is whether or not Saadia committed Treason. The other "side" is the family in Hammerfell that is likely going to execute her once Kematu brings her back, and you never get to speak with them. The fact they hired Kematu, a shady character, is the only hint you get about them. Meanwhile, Saadia lies and exaggerates at every turn, so the evidence is certainly not in her favor. But you still never know for sure...

Just as a note, Saadia says she spoke out against the Thalmor and is facing repercussions from it, but that shouldn't mean anything. Hammerfell is independant from the Empire and fought the THalmor.

What CO said above, plus Kematu says she sided with the Thalmor, so why won't the Thalmor protect her?
Both sides know perfectly well that the Thalmor are NOT popular locally, and use that to gain sympathy. It is very possible that the true offense had nothing to do with the Thalmor.

I just killed them both, but then had to kill my follower, Fenadel, as he witnessed me kill Saadia. Now I get to play with Lydia...

Lol guess I have to make a choice as well as what to do with this. If they are bounty hunters hmm or if she committed treason. Still is interesting how they leave this choice up to you, making it no clear "right or wrong" choice in this. I'm sure it will have some effect later on in the game though.

I've never seen that choosing to side with either one of them affects anything down the road in this game. If Beth ever gets another one of these together on something other than console, I might know years from now.

I did have Thalmor assassins come after me after turning Saadia in (hadn't done any Thalmor-related quests yet).....

Started a new toon today. On my way back to Riverwood from Whiterun to do Bleak Falls Barrow, I got jumped by THREE Thalmor assassins. Good way to wind up dead asap.... Needless to say I hope - I hadn't even SEEN the Alik'ir as yet.