There's flaws with the whole D&D morality system itself. I'll post more on that once I've powernapped. For now I'll say there's this little thing called "reasons" and "context". Why people do "evil" things. yet may be "loyal" for example.
Anyone else remember that evil dwarf in Throne of Bhaal in BG2? You can play as a good none judgemental character (or any alignment really). And he'll quickly stick an axe in you if you claim the moral high ground (at least that's what he implies). But if you simply coexist" you'll have a little moment just before the final boss where he starts to become just a tiny bit sentimental.
The drow from BG2 is also another good example. And Sarevok from the Throne of Bhaal expansion. Not "Evil" for the sake of it, but "complex". Driven. "Action and reaction".
I don't think the morality system is necessarily flawed, it's just that people always focus on the 'evil' part and not what comes before, which usually leads to every 'evil' choices in games converging into the most extreme form of 'chaotic evil'.
Lawful and neutral evil usually get the shaft, despite being the most nuanced alignments (imo), and arguably producing the most interesting characters. Edwin, and in some measure Viconia, are prime examples from the BG franchise itself.
When i think about this Kotor usually comes to mind. Revan is described as this 'lawful evil' mastermind, and yet in-game the only choices are smart/good or chaotic stupid evil.