The problem of "Good and Evil":
A big problem when trying to make a "good and evil" system is, what do you define as evil and what as good.
Imagine this scenario, you murder a random person on the street in cold blood, you never met that person and he never did anything to you. But it later turns out that person was the leader of a criminal organization that planned several murders, robberies and is responsible for severe damage.
Should the game count that murder as good or as evil?
You simply can't tell for sure, the only thing you CAN say however is that if people observed the murder they will look at you with different eyes now and in the eyes of the law you DID commit a murder no matter who the person was. Even if you knew that person to be what he really is it wouldn't pull your head out of the sling that easily, people might sympathize with you but in the eyes of the law you're still just a murderer.
That's why instead of a good and evil system there needs to be more of a "social judgment" and a "law judgment".
Social judgment is what people think of you, with the murder example above, when you murdered somebody everyone hated for good reasons (not just being an outcast but a real bastard) but had no way to deal with some people will consider you a "hero of the people" so to say. However what you did was still a crime in the eyes of the law and you likely get arrested.
Here the NPCs connection to what happened and their own personality play the biggest role how they will react. Someone who's very emotional or has a close connection to the murdered person is likely to react more than someone unaffected.
Law judgment comes into play when you violated the code of law, here some things that could be called socially unacceptable can happen. For example someone who's actually "innocent" or maybe a well loved member of a town somehow got into attacking you and you kill him in self defense, may it be accidental, because you had to or you DID aim to kill him once he attacked you. Here the people who liked him, his family and people who witnessed it will treat you differently, however in the eyes of the law what you did was fully justified and the worst you may get is one day in prison for questioning.
Here the personalities play a more minor role, they still play into it but it's a hard written code of law that dictates it. There might be some who still manage to get you imprisoned even if you where actually innocent, like when you already built up a bad reputation.
However, while largely separate factors both can interact, if people like or don't like you they can give false testimony to either help or get you into trouble. This largely depends on their personality though, someone who's very lawful won't lie even if he hates your guts.
A third instance playing into this is "Religious judgment", sometimes what a belief dictates can be far different from what the law says. It's more like a communal social judgment as it also dictates what people think of you much more than the law. The big difference is which comes first, the law or religion and it can even differ from location to location.
In a highly religious society it could be possible that you kill someone but don't get arrested because he was considered a heretic or of a "bad belief" there, hell some people might even compliment or reward you. However trying that at a town in another region where the law comes first it doesn't matter, even if members of said religions are present or even a majority. What can happen though is that they try to cover such things up.
And this leads into rivaling beliefs, some things might be OK in one area but are considered a crime in other.
The code of law could actually come in 2 parts, the "imperial code of law" which is the same everywhere and all guards have to follow it and the "regional code of law" that can differ between regions. Walking around naked in the streets of one town might just be considered an annoyance or even as nothing bad (Tribal Argonian village for example) while in another it gets you a painful fine or a few days in prison.
On Good end Evil though, what should happen if you commit a murder and nobody ever found out about it? Should there still be some kinda of karma system or divine judgment that says "you're a bad person" and make people suddenly look at you different?
I'd say in game you should be able to commit murders as much as you want, as long as nobody notices it you're fine. The only drawback would be that you potentially kill people that COULD become useful for you later on and, when more and more people vanish without explanation, people get more suspicious and nervous which can make some things harder (or easier, depends).
It's all about how well you can cover your traces, do it well and you're OK. Become sloppy and you might have agents on your trail watching your moves. Get caught and prepare for a looong prison sentence or execution.
But still, where there's no witness there's no trial.
In the end, as long as the characters personality is dependent on the player, only the player should judge if a decision was good or bad. Everything else is not karma but consequence of actions.
Thankyou for explaining this in such detail, I have a much better understanding of what you mean now, this would go well with the bringing back of Daggerfalls court system, where you are caught by the law for some crime and have to testify as either guilty or innocent, while pleading guilty your sentence is reduced, while pleading innocent your sentence is increased or doubled if you are found out and if you are successful you get let go free of charge. This could be expanded upon using your system of thoughts so that witnesses are called in and testify, if no witnesses are available then the evidence at the crime scene is used and you have more chance to get away with your crimes. Along with this idea is the possibility that you are blamed for other peoples crimes (not in a quest but just randomly if you're in the wrong spot at the wrong time say a pickpocket steals something from someone and you're blamed, or a murder, etc).
As for your ideas about good and evil, I can see how the evil bar might get in the way, or wrongly construe what people think of you because often times no witnesses are left. :gun:
Stephen.