Let me throw a wrench into the mix from a jewish perspective. (Not to say this is THE jewish perspective... Judaism is far too diverse to make that claim. This is -a- jewish perspective though)
How many of you are assuming that omnipotence means that you, as one entity, can perform unlimited actions upon another seperate and distinct entity? In D&D terms, we'd be talking about a PC (or even an NPC) with Inifnite Strength, Infinite Magic, Inifnite Hit Dice, etc etc.
What about thinking about omnipotence instead in terms of the DM himself? Or more than that, the collective understanding of the world shared by all the players. Omnipotence is then not that a character in the story can lift the biggest rock in the universe, but instead that the people sitting around the table can change the story just by thinking it. Because the story only exists in the context of their thoughts.
Which would mean, for the purposes of our debate, the G-d not only allows evil to exist, in a sense he actually actively creates and sustains it moment by moment. Because existence itself only has meaning because G-d is thinking it up.
(Which is not to say everything IS G-d, like many hippie mystics would say. Just because Mylar the Wizard doesn't exist apart from the stories I tell about him at the D&D table doesn't mean that Mylar the Wizard IS me.)
This is supported by scripture.
Isaiah 45:7 G-d is the speaker:
"[I am the One] who forms light and creates darkness, I make peace and create evil; I am G-d, Maker of all of these."
It's even in the tetragrammaton, the name G-d gave to Moshe when asked for it. I mean, the Yod and Hey and Vav and Hey aren't just four letters to refer to our three letter word "G-d". It's a peculiar conjugation of the verb "To be" or "Is" in Hebrew... the conjugation makes the word more akin to "That from which everything is able to exist"... perhaps you could say "The Isifier"[1] as in, "He makes me is."
But anyway, so the Isifier creates (present tense active verb) evil, otherwise evil wouldn't exist. So how can we call the Isifier good?
Well, in part, that's like asking "Is existence good?" Or asking, "Would you have prefered to not exist?" How about "Shouldn't we just kill everyone so no one could do evil anymore?" Funny how doing that would be evil anyway...
But we still have to deal with the paradox. Jewish sages have come up with what I believe are some pretty good answers. Here's one that's pretty down to earth.
G-d let's Evil exists (continually creates evil) to make Good better. And I don't mean by contrast... this isn't a ying-yang thing. If there was no evil, there could still be good. (If there was no good, however, there could be[2] no evil, because existence is good) It's just that there are certain KINDS of Good that require evil first. The Good of destroying evil, for instance, can't exist without having evil first. The Good of Repentence can't exist without doing evil first-- and please don't underestimate how Good repentence is. Rabbis will tell you that true repentence turns past evils into good, and a higher kind of good.
And yet, the Talmud has a story that Moshe, who got to talk to G-d like you or me would talk to a friend, side by side, Moshe asked G-d "Why did you create evil?" and G-d refused to tell him. In fact, said that was going to be the the ONLY thing he wouldn't tell him. Why?
Imagine that you see a lady screaming in pain. You'd think that was bad, right? But if you then figured out that the lady was screaming in pain because she was experiencing the birth of her first child in a happy marriage, you'd feel better about it, knowing the pain was for a good cause, right?
G-d basically told Moshe that he didn't want us to feel better about the existence of evil. He wanted us to hate it and fight against it constantly. So he refused to explain himself.
On a far more mystic and spirtual level, the question arises about how can a perfect and good G-d have any association with evil at all? And the answer is that G-d seperates himself from the evil he creates via what Ezekial called the "Chasmal", which is understood to be the basis for modern day Jewish tallit katans (a garment of clothing observant jews wear).[3] But here we're getting pretty mystic and kabbalistic and I don't think we need to go that far right now.
[1]A Chassidic Rabbi suggested this translation to me. I kind of like it, for its weirdness.
[2]Remember, the word "be" means existence.
[3]I read this in
a book by Rabbi Aryeh Kaplan