On Ragnarok's 'whole other game' approach...two points.
First, I think it's fair to say that there are certain interactions and options that SHOULD NOT be available to a Drow, Duergar, Goblin, Gith, etc. And some unique options available to them that Human PCs wouldn't get. But while it's fair to shift their interactions significantly due to distrust, I don't think you have to assume that a goblin PC walking around with (for example) two humans and a half-elf would immediately get attacked on sight in 'civilized' settings. More use of disguises - not just the spell - might also help abate some of those effects. (Maybe you even have to roll sometimes to not have people attempt to capture you and burn you at the stake like they did to Viconia.) I don't see this as being, mechanically speaking, that much more development work than the existing different treatments for various races and classes.
Second, while I haven't explored this too deeply, it looks like there IS a pretty thoroughly-developed 'evil' avenue for playing the game. I'm not sure it's that big of a tweak to the game, as it is, to create an option for a goblin PC to simply sign up with the Absolute's faction and launch an attack on the druid grove.
