The idea of a purely evil race is completely improbable by anthropological and socialogical standards but of course fantasy is not reality.
In Tolkein, orcs were completely evil but they were also created. They were not born normally (IIRC). There was no need for them to maintain a viable intergenerational culture on their own. This was accomplished by their human (and other) masters.
But then you have to wonder what is evil. A species that xenophobically hates every other species but has a desire to see their own species prosper, this could be called evil.
The Yuan-ti are perhaps the greatest example of this: they carry on the line out of feeling of superiority and divine mandate. They have a high birth rate to allow for the very high infant mortality rate and thus those who survive are the strongest. It is a inhuman embracing of the idea of social Darwinism. Most would consider this evil. Add onto that the tendency of such species to enslave or slaughter (or both) any "lesser" species they come across, and you have a picture of evil.
But just because the species/culture is evil, does this mean that each individual will be?
I think that most likely, yes. Those yuan-ti (to continue that idea) who survive their first years are the strongest and the most vicious. Those who survive to adolescence learn the hard way that cruelty is rewarded and kindness is punished (sometimes to the point of death). They come to understand, upon reaching adulthood, that everyone who is also an adult is, by definition, the strongest of their kind. They treat each other with respect born of this knowledge but they do not let their guard down. The only thing that keeps the race from disolving into infighting are the divine purpose they serve (in this case to reawaken the Slumbering Serpent and spread yuan-ti influence to overwhelm all other species). Any who continue to be strong (read: cruel and powerful) and who serve to spread the influence of the yuan-ti, are the elite of the society, the most eligible to breed.
I don't see that any but the most abnormal case could lead to a naturally good (or even neutral) yuan-ti. If a yuan-ti were raised by non-yuan-ti they would still be seen as violent and blood-thirsty because those traits have become the dominant for the species. They might learn to view other ideals as positive but they would still be seen as "too violent" or "too duplicitous" for other species.
Now in terms of relativism, the definition of "good" for a yuan-ti is horrific acts of cruelty against non-yuan-ti and those who show weankness, plotting against and enslaving others, blood sacrifices to the Serpent, etc. This is why relativism is so awkward (especially in a game). We are to a great extent bound by the preconceptions of our culture and upbringing as to what we find acceptable. Sure, it is "good" for yuan-ti to attack a human village and kill or enslave the people there. By their norms, they are serving the good of the species. HOWEVER, it is very much not good for the people there, regardless of yuan-ti norms.
It is like the idea of willing (or punative) human sacrifice from within a culture (a rare thing indeed) and forced human sacrifice of prisoners and slaves (more common, historically). With the first, an argument could be made that the sacrifice is not evil because it is for the good of the culture and is accomplished entirely within the culture according to their norms. The second cannot use this argument: the two relative moralities cancel each other out. A more basic morality, that of one sentient creature taking the life of another, must then be invoked. Since presumable neither creature invovled would volunteer to be sacrificed (since neither has), the act of killing must be deemed "wrong" or "evil" regardless of the relative moralities of the cultures.
Within a game, relative morality works best when you are dealing with a large empire with multiple cultures and no single unifying cosmology. In these games, the epic struggle between good and evil is not the focus of the game. Instead, politics and cultural interaction, wars of succession of conquest, and quests of discovery are the order of the day. It can be harder for some players to justify their characters actions in this sort of game. If the creatures I kill are not evil, how can I call my character a good person for killing them?
For epic style games or games with a unified cosmology, a clear, absolute idea of good and evil works better. This is more in keeping with traditional fantasy and tends to lead to fewer player quandaries--although there are still plenty of opportunities for character quandaries. The idea of negotiating with the orc hordes would never come up: the orcs cannot be negotiated with and even if they could, they could not be trusted to uphold their side of the any treaty. It is a simple matter of destroy the orckish infestation or be destroyed by them. They are a force of evil, pure and simple, in the same way that swarming locusts were a implacable force of nature.
For my own campaigns, I tend to use a mixture of the two. humans (and a couple of others) tend to be complex with no single deity defining them and several cultures within the race. Other races (orcs, for example) are absolute.
That was longer than I intended.
DC