A while back there was a great discussion of "evil vs. Evil". That is, an evil person is just evil. He's taken evil actions, he's got an evil viewpoint, but there's nothing inherently evil about him; he can be redeemed, after all. His aura might show a bit of evil to it, but it's not really his defining characteristic. Even if you figure out he's evil, it's not grounds to go all Smite-y on him.
On the other hand, a creature from the lower planes is Evil. Note the capital letter. There's an inherent taint, something they have to fight against very hard if they want to change. True redemption is impossible, because it's just part of their nature. ("Don't touch it! It's concentrated evil!") If a Paladin sees it, he kills it; there's no reason to hold back.
The two shouldn't be equated. A guy who robs houses and slits a few throats along the way isn't the same as a creature from the Abyss. It's annoying, in a way, and it also makes certain spells/abilities too powerful. Paladins Detect Evil at will? If this finds evil people, then it becomes really difficult to have your bad guy be the King's advisor or something.
Protection from Evil? How many enemies DON'T qualify as evil in a normal D&D campaign?
***HOUSE RULE ALERT***
So, a house rule some people liked is, have the anti-Evil spells (Detect Evil, Dispel Evil, Protection from Evil) or abilities (Smite Evil, the Sunblade's extra damage) only work against Evil, not evil. That is, they work against:
> Creatures with the Evil subtype (Outsiders from lower planes, most Undead, some Aberrations)
> Spells with the Evil descriptor (most Necromancy spells, for example), or those cast by a creature with the Evil subtype
> Certain items, usually those made by the above creatures or using the above spells.
To make some of the abilities more useful, you could modify them; for example, make Detect Evil detect Evil in rounds 1-3 as listed, and evil in rounds 4-6. Make Protection from Evil be half as effective against evil. Stuff like that.
Or, one suggestion someone had was to make someone performing an evil action actually register as Evil while the action was taking place. So, even if you're one of the good guys, if you go and mindlessly slaughter those Orcs you'll register on a Detect Evil spell for a little while, long before your alignment would actually change.