Reputation is ever increasing in the Divine Divinity world. Everything you do gets around. Every quest you complete gets talked about by the townsfolk whether there's a Rputation reward or not.
Divine Divinity sees a positive reputation as helping the forces of the good and holy and a negative reputation being a criminal or murderer and generally bad in society's eyes. It is like the D&D allignments Lawful and Chaotic. But you are always Good. You start as a Good Neutral character, one who respects the law without feeling any obligation to anyone but themself. Every quest you complete, and every crime you commit increases your reputation. Sometimes it increases it in the Lawful direction, sometimes in the Chaotic direction. Society reflects upon Lawfulness/Chaoticness and acts accordingly. The majority of Rivellon's inhabitants respect one who will uphold the law without obligation, but frown upon one who has only their self interests at heart.
But you are always Good because you are the Divine One and you fight against the forces of Evil. Good and Evil are sides. It's a stupidly black-and-white concept, but that's what it represents. While you kill people for pleasure, which is a very evil concept, there is no capacity for being evil in Divine Divinity. You were designed to be good and that is what you shall be.
RiftRunner will address this. You will still have reputation as saviour or selfish, but with the addition of the soulforge, you can shape your destiny as a Good or an Evil character. There's every chance you will be required to balance your good-and-evilness to survive the journey, but it does open the gates to good and evil characters.
