There's varying reports for why Azura had a snit fit and cursed the Chimer: some say it's simply because of the use of Kagrenac's Tools by the Tribunal, which may or may not have broken vows the Tribunal may or may not have made to Azura. Others say it's because Indoril Nerevar was an especial favorite of Azura, and his murder (either by Vivec alone or by Almsivi all conspiring together) is what set her off--there's one variation of the tale where he was murdered as he was praying to Azura for guidance, so...I could see where she might be peeved by that. Of course, no one knows which particular story is true, or if they do, they're not telling, so.
If you believe that Nerevar was murdered (as I do, but that's just IMHO), then...well, Azura doesn't exactly come out smelling like roses, what with cursing an entire race because of the actions of the Tribunal. In some versions of the story, her cursing the Chimer and prophesying that Nerevar will be reborn sounds more like a spiteful "nyah hah, you're sooooo gonna get it!" to the Tribunal than anything. That's probably where folks are getting the "evil" connotations from. (Although a lot of that comes from Vivec's personal account of the events of Red Mountain, and since he's the trickster poet of the Tribunal...I'd take all that with a hefty helping of salt.)
That's part of the problem right there, Vivec said that Azura cursed the entire race, I don't recall Azura ever claiming she actually did that. And even if she did, what was that curse? She changed everyone's skin pigment,
Also, Azura doesn't want to replace the Tribunal. She just wants some schmuck to fulfill the Nerevarine prophecies, which state only that the Nerevarine will destroy Dagoth Ur and topple the Tribunal ("his mercy frees the cursed false gods / binds the broken, redeems the mad") and basically undo what was done at the Battle of Red Mountain. Nobody said anything about filling the void left behind.
Fair enough, but lets face it these three had built a religion pretending to be gods using the same power that is allowing Dagoth Ur to spread his influence across the land. And now that charade is costing them, because Dagoth Ur has more control of the heart then they do. Whatever Azura's motivations, It can easily be argued that they brought this on themselves by tampering with forces they didn't understand and tried to use for their own ambitions.
But as for the subject at hand, a lot of people are saying that the priest deserves his fate. Problem with that is that it doesn't matter that he's the priest of another evil, torturing him is still and evil act. And unlike Sinding in the Hircine quest, your not even told why the Forsworn have captured him and locked him up. To me it sounds like, we'll he follows an evil god...so he's evil, which is a pretty weak case.
And even with the Hircine quest your given a choice, House of Horrors railroads you into doing this, all under the pretense of doing something good, and the game will continue to nag you until you start it, cause your likely going to be traveling up and down that street in Markarth several times. The only way to fail the quest is to kill the priest before he meets with Molag, and the game never gives you a way to opt out except for not doing it. Out of all the Daedric quest lines, this is one of the more disappointing quests and, dare I say, not nearly as well written as the other Daedric quests.