The first is practical... What do you do as DM's to deal with this kind of behavior?
The second question is more philosophical.... Does this kind of activity, all in the name of GOOD, shine a stark light on a decaying or completely dead moral/ethical framework on those players who indulge in it? QUOTE]
Since I've picked up DMing again (10 sessions in a row now! Woo-hoo!) this hasn't come up, but it has in my older games and I've devised a way to address should it come up in this one.
Whenever it looks like my group is going to do something like kobold torture or drow = trap bait, I'm going to present one of them with this memory, and do it before the whole group. It'll be modified for the particular character, whomever that may be, but basicly:
"You suddenly remember an incident from your childhood. Your dad the sherrif caught one of a ring of theives, but that one wouldn't give up the names of the other theives. While the captured theif was duely punished you asked your dad, 'Dad, why didn't you torture that thief for the information? He's evil anyway, and doing that you could have captured the whole gang and stopped the evil they'll do while on the loose. You could have done some good with that torture.' Your dad replied, 'Son. Torture is evil, we're good. Good using evil against evil to do good doesn't make the evil good, it makes the good evil.' "
Whether that would work or not will hopefully remain unknown for a long time, but I think that would make it clear that I as DM have already ruled that Good people doing Evil actions against Evil people in order to accomplish Good things is an Evil act. It should also make it clear to the players that I consider whatever they're about to do as one of those Evil actions.
With that all made clear, I'd let them do what they decide to and make a note about the alignment infraction. One incident won't make for an alignment change so far as I'm concerned, but several will do. And like Aeric said, I wouldn't tell them until it came to a game mechanics point.