The muddle is about Good and Evil. Which it imports from D&D. On one hand, you have the straightforward sort of stuff -- murder is bad, etc. On the other you have the Always Evil races, which do tend to give people heebie-jeebies trying to work them out. It would be a real trick to work them into a world where they are born that way*, which is why most people, like Burlew, do not. Burlew's goblins, objecting to the racism about them, have a good case, they were actually created by the gods to give characters a chance to level up, and once an elf is depicted saying an only good goblin is a dead one to justify killing a helpless goblin prisoner. We get the Team Evil effect, where at points it looks like you dress people in white and blue to say they're on one side, and red and black for the other.
It also treats good and evil seriously. O-Chul discusses the matter with the Monster in the Dark, explaining that it is a good being, and telling it to keep control of its heart and mind to remain good, even though its evil associates want it to do things. Belkar is evil because he's a self-centered killer. Roy qualifies as good because he's being trying to save the world without looking for reward.
And I ran across a discussion of reforming and falling from righteousness where someone complained that it doesn't work that one deed can make you evil, but you have to work and reform and become consistently virtuous to reform. That was obvious based on what the person called a certain current day religion -- but claimed that it wouldn't work that way in a world where Good and Evil are forces the way they are in D&D.
That's because the way they are forces in D&D doesn't really work. People will not believe in a world where the equivalent number of deeds transfer from the Good side to the Evil as vice versa. They may not realize the classic argument against Manichaeism -- that both good and evil deeds are done in pursuit of some good, not some evil, and so evil is not on the same level as good -- but they feel it in their bones. As soon as you use actual deeds instead of the colors or other vacuous side-indicating stuff, you have to grapple with that.
* Though if you really wanted them to born that way, they could be the reincarnated ghosts of very evil men (or whatever) who have refused to change their ways.