The karma system will only be more bothersome without NPCs reacting to your karma score. As I said earlier, having a "good", "neutral", "evil" karma system really limits the way you can respond. Everything is made to fit into these 3 categories. And even if some things aren't made to fit into the categories, they are oddly misplaced in a category that doesn't do it justice. And without rewards or punishments for having a good, neutral, or evil, karma is even more pointless.
Ah, but all you've done, there, is create a http://en.wikipedia.org/wiki/Fallacy.
By my proposal, Karma only applies to those actions which either positively or negatively affect a living being. (Negative Karma being awarded for negative actions, positive for beneficial actions, and all others having no affect whatsoever.) And here's where you'd made an incorrect assumption, I think. Karma, as it is only concerned with positively or negatively affecting living beings, is unconcerned with cannibalism. (Your karma would remain unaffected by eating the flesh of a dead body.) Killing someone to eat them, yes, would be a "bad Karma" action - but it would not be the intent to eat them which made it negative Karma, it would be the act of killing him, itself. Eating someone who is already dead would be a neutrally karmic action. (ie, killing someone and then eating them would have the same negative karmic repercussions that simply killing them would give you - there would be no difference, as the only pertinent act would be the killing.)
"Right and wrong" don't come into it if we're dealing with objective facts, after all. There is nothing subjective about negatively or positively affecting a human being - any one action is either one, the other, or neither. And thus, there is no room for misconceptions or differing opinion if we reduce to the most basic of binary considerations. At this level, the game isn't judging you as if it were some opinionated parody of conscious thought - it's simply collecting data, which over time and given a properly large data set, would give a fairly accurate general view of the sum of your character's actions. (What exactly Karma would affect is a whole other matter - my posts are getting long enough without going into that can of worms, yet.)
With Tranquility Lane, you bring up a good point - though once again your implication about my stance is incorrect (though perhaps I didn't explain myself all that well previously.)
That is a tough one. Personally, I'm a big fan of these sort of moral dilemmas in roleplaying games, which make you think a bit about what the "right" thing to do would be. (Harold, and The Pitt being two other examples in Fallout 3 that I found to be compelling examples of this.) A lot of times, these cannot be reduced to a binary and objective equation (which is exactly what makes them "moral dilemmas" in the first place.) What I find is that the concept that I can make a choice in these scenarios and then have the game tell me that "no, you picked the 'wrong' answer" takes away from the very point of having these dilemmas in the game, in the first place. The whole idea behind presenting the player with these choices is that it is a murky subjective with no conclusive answer.
In those cases, I think it would be best for the game (and Karma) to just stay out of it. Just by playing the game and playing the role you've created for your character, you're going to accumulate a history of karmic choices - more than enough that there'd be little need to get bogged down into these pre-set, scripted scenarios that are put there specifically to make the player question their choices.
Lastly, you say
Actually, that's not true, either.
Specifically, with my proposal, you would be able to do that. If you're positively affecting more people than you are negatively affecting (literally, the needs of the many would outweigh the needs of the few,) then you'd certainly be able to remain "good" while working for "the greater good." You wouldn't necessarily be as "good" as the "good guy" who was able to do good things without also sacrificing his ethics, of course - but I think that's kind of the point, isn't it?
Besides, you're citing as a problem one of the things that I think could make a good Karma system compelling. The best "evil" villains don't think they're doing bad things. They actually think they're the good guys! A character with low or negative karma who does so by doing things he think is "right" would be the manifestation of that sort of character - ie, "Chaotic Good."