I understand where DarkJay is coming from (at least I think I do), but his idea does seem to have the one fatal flaw of possibly taking options way from the player.
I personally believe that games should have a "Morality" system for NPCs and a "Reputation" system for Players. Here is a rather basic example of how I see it in my head. If I kill/capture a mass murderer who has escaped from prison, the reason would alter my reputation. If I killed him to prevent him from escaping and killing again, that would go on my REP. If I killed him for revenge for something he did, that would go on the REP. The same if I captured him and returned him to jail or worked with him for one reason or another.
If I later talked to an NPC, they would view my action differently depending on their morality. Thus limiting or opening options for me involving that specific NPC. The following example(s) is/are going under the assumption that I killed the above Psychopath to protect people. A person with a high moral score(9-10), would view the killing as cold blooded murder and see it as evil. These people would be the more niave people who beleive everyone can be saved from corruption. A person in the moral gray area(moral score 4-6), would recognize the reason I did it and accept it. They might not like the option but they accept that it was the "best" option at the time. A person with a low moral score(0-1), wouldn't give a damn unless he had a personal stake the man I killed.
This system would alter the player's options not based on his actions (although there are certain options that will become unavailable if certain things are done; kinda hard to get a quest from a dead guy), but how others view his actions. It would also allow for the Lawful Evil people about the forum to play a "Hero" up until he was near whatever evil goal he set for himnself. Such as pretending to help in a police investigation just to get close enough to a certain officer so you can kill him, or gathering good allies only to betray them near the end game and take control of the big bad's doomsday device.
If you want a sense of Personal Code in the game, let the player pick from a list of personal codes and give them a bonus if they adhere to the code they chose. By code I mean any rule, goal, or ideal they hold close to their hearts. So a good character could have the personal code of never taking a life unless in self defence, while a villian could have the personal code to never let anyone who "wronged" you live. By wronged I mean anything as "big" as betraying your trust for their own personal gain and leaving you to die, or as small as cutting in front of you in the lunch line. Really anything you view as being "wronged". As long as the player follows the code, they receive a bonus befitting the nature of their code. Such as, a person who vows never to kill might get a boost to his REP for not killing anyone. This would allow him easier access to certain things from Higher Moral Score NPCs. If the player happens to break his own personal code, he receives some kind of effect based upon what he did and why he did it. This effect doesn't need to be entirely negative.
Example: a man who takes a Personal Code to Never Kill, kills a man. This causes him to question himself and do some "soul searching". The effect he would receive from the breaking of his code could be something like getting an adrenaline rush from killing, seeing as he is new the experience, but suffering from a crash after the killing as his actions come down on his Psyche. Maybe he takes a more sinsiter turn and gets a rush from killing but becomes addicted to the rush, thus giving him a bit of an incentive to kill.
You could also give certain things, like weapons or armor or something of the like, a Morality system. If the weapon judges you too pure to wield its dark powers it will reject you. These weapons would either be semi or fully sentient in mental ability but, being objects, physically incapable of doing anything other than choosing a wielder. Or maybe they are physically capable, who knows.
These examples are more Pen & Paper RPG than Video Game RPG, but I beleive I have made most of my point.