I would indeed like to see the "good" and "evil" sides in games that push the players' ability to do both (since it's usually the biggest "multi-threaded" plotting option for games) reflected as more than "indescriminantly killing people" and "insulting people to their face," but we don't seem to have progressed too much beyond that yet. Heh...
Usually it's the "selfish lust for power" and "doing things without regard for their consequences" that leads to common evils, rather than "I WILL POP YOUR HEAD OFF AND DRINK THE BLOOD BECAUSE I'M BORED."
This may be a really weird aside for some people, but I think the CCG "Legend of the Five Rings" reflected the better way to go about it from time to time. As part of their "players determine the course of the world/game" design, they would sprinkle in certain cards/traits/powers into a set that favored one clan or another and see how they would be adopted. In the first notable example, these were corruptive influences for the "noble" clans that were simply powerful, and through tournaments AEG would track the winning decks and their construction to see how widely-used such influences were, and applied the results. The Pheonix clan almost destroyed itself after their powerful magic users went corrupt this way; the Crane clan went through a civil war--not because of the corruption cards, but instead because two different houses within their clan (one more military and one more honor-based) kept meeting up head-to-head in the final matches...
Overall, those kinds of touches kick ass. ^_^
It would be nice to see things more in that vein start working their way into RPG's. Spells that are powerful could carry negative affects in certain situations (causing forest fires, withering crops, etc.), leading you to put more thought into when and how often to use them; side-questing could have non-obvious affects (affecting local economies, NPC jobs such as guardsmen or local swords-for-hire) that could have consequences that make you think more about how often you go on them and how long you spend in one area...
I'm hoping RPG's spend more time figuring out how to make you really feel like you're playing in a world, rather than giving you two main storylines to follow and affecting how NPC's talk to you in general.