I think the alignment system is an attempt to get players to play their characters in ways that do address moral issues and hopefully generate stories and conflict.
I think this is a point on which we have different views.
As a matter of the history of the game, I think that Lawful vs Chaotic created a different risk/reward calculus in dungeon play: the Lawful character has access to friendly clerics who can heal, raise etc; but also has certain restrictions on their range of permitted actions. The Chaotic character is under no such restrictions, but doesn't get the bennies.
I really have no idea what the D&D designers thought alignment was doing post-DL and into 2nd ed AD&D. But I don't think that it has ever been a useful means of addressing moral issues. The starkest illustration of this is that, in a Planescape game, if someone wants to know what being Good requires, they can just go to one of the upper planes and check it out! Which, in the actual process of play, means getting the GM to tell them.
Non-Planescape games might make the gameplay a bit more drawn out; but between Know Alignment, Detect Evil, various other divination spells, Phylacteries of Faithfulness, etc, the same basic structure of play is present.
The first step to having play actually address moral issues is to let the players express their opinion on what morality demands, not look to the GM to tell them what morality demands.
In terms of narrativist RPG design, almost exactly 20 years ago,
Baker expressed it like this:
If you're designing a Narrativist game, what you need are rules that create a) rising conflict b) across a moral line c) between fit characters d) according to the authorship of the players. Every new situation should be a step upward in that conflict, toward a climax and resolution. Your rules need to provoke the players, collaboratively, into escalating the conflict, until it can't escalate no more.
D&D often fails to deliver fit characters. Its rising conflict is frequently not across a moral line, and it is frequently not according to the authorship of the players. That's not a criticism of D&D as such - a lot of D&D play does not set out to be narrativist! But it does show some of the work that will need to be done to achieve narrativist D&D play, and will help identify elements of the system that are apt to get in the way. For instance, the most reliable sight of rising conflict in D&D play is a tense combat - but it is not straightforward, in the context of D&D play, to locate this as a conflict across a moral line.
(4e D&D is something of an exception to the above, as I posted here:
D&D 4E - Reconciling 4e's rough edges with Story Now play)
