Which is exactly why they should do one of two things:
B: Drop the pretense of being an open RPG while pigeonholing all your actions into predermined "good/evil" categories.
Face it, even the most "everyone would agree that..." actions aren't agreed on by everyone, and it's not that difficult to rationalize almost any action in the game in either direction. Heinous "clearly evil" acts, small in scope, taken to infiltrate a massive evil group to take them down completely from the inside, etc...
Uh... I'm afraid that's the very definition of Karma.. If they had created a brand-new concept, you might have an arguement (don't get me wrong, I agree the implementation is flawed.)
Karma is a religious philosophy (based either on an anthropomorphous deity or "Nature" or "The Force" or whatever) created by humans as a tool to order society. While intending to be objective it (like any legal system) is prone to modifications and exceptions and therefore becomes subjective. i.e. in the abstract, all killing (including beasts) equates to murder. This is all well and good until one is attacked.
There are those—of the turn the other cheek faction—who insist self defense is no excuse, and there are those who include animals in the proscription. As you so astutely noted, "most would agree that..." is where any such system quickly falls apart.
But even awarding a large benefit of the doubt to the Devs, and giving consideration that this is a game, the implementation is flawed.
Better they stick with Reputation. I would like to see a graphical representation on a linear scale of Vilified to Idolized with factions placed appropriately along it.