How bad can it be to let a cholesteatoma go untreated?

Very Bad. Cholesteatomas produce chemicals that can erode bone. Depending on where the cholesteatoma is the bone at risk can be the bone separating the ear from the brain and potentially lead to a brain issue such as infection or brain fluid leak. You can also get erosion into the inner ear itself leading to permanent deafness and severe vertigo.
Don't find out. The complications of untreated cholesteatoma can be life-threatening. Besides deafness and balance issues there can be paralysis of the face, infection of the blood vessels of the brain, spinal fluid leak, meningitis, brain abscess, elevated pressure inside the head and other horrible issues. It's one of those things you have to get treated asap. See an ENT specialized in cholesteatoma.