In the Divinity universe, sentients demonstrably have souls that can (judging from previous games) be manipulated and corrupted. Something as spiritually brutal as stealing Source would definitely corrupt your soul. This could have serious effect.
A corrupted soul may react to things differently than a non-corrupted one and this would most likely have an effect on magic use, since this is intimately connected to the soul.
From the novella "The Child of Chaos" by Rhianna Pratchett, shipped with the Deluxe Edition of Beyond Divinity:"Lucian sighed: 'Because, Zandalor, I am not entirely without gifts when it comes to seeing the good in people!'
'Well you certainly couldn't see the bad in her, could you, eh? Eh?'
'She was in my house!' snapped Lucian. 'She sat down at my table and ate my food, Zandalor, and I wasn't about to give her a moral shakedown over dinner - especially in front of Damian!''"
Clearly, mages have some way of peering into people's souls, but this ability is also clearly not foolproof, which makes sense. If the darkness of those who would do evil were readily apparent, they would have little chance of getting away with anything.
This said, I still don't think it makes sense that your average NPC would be able to tell that your soul is somehow corrupted (or unusually pure.) It should be something reserved for other mechanics and the odd occasion where you meet someone who is able to literally peer into your soul.
Finally---I've said it before and I'll keep saying it: karma is not reputation. Karma is a state of the soul and reputation is the deeds you're known for. If Larian wants to have reputation in the game (something that has been done to good effect in lots of open-world games) then they should by all means add it, but it's not comparable or equivalent to karma.
(...) Committing genocide isn't negated because you went and helped a grandma across the street. You should be the most reviled person in existence if you commit genocide, regardless of your previous acts.
What you're describing is actually possible to describe just in terms of proportion. If committing genocide gives you seven million negative karma points, you can spend your entire life helping geriatric saints across ragingly busy eight-lane highways full of homidical psychotics and you still won't even make a dent your karma.
