Celebrim
Legend
I never had the problem with it in AD&D that others report, in part because I tended to play with people similar to myself. It was only when I found myself in a mixed group with some self-declared Satanists (at age 13), that I ever had the first alignment problems. For example, simply declaring that I was playing a LG character, was met with voiced disgust on the grounds that LG people were simply stupid and their morals just got in the way of winning. CE was the best alignment because you were free to do whatever you wanted, and having a LG player in the party got in the way of that. That fellowship didn't last long for a lot of reasons, but it led me to the rule as a DM that players had to play characters of compatible alignments.
I do see why applying the strict letter of the AD&D rules would lead to problems in many groups, and there is a ton of advise on campaign management in the 1e DMG that seems highly adversarial and which I never really understood until I ran an open gaming table at a local store that approximated what I think Gygax's experience as a DM was like - running games for 12 players at a time, different players every week, running games for strangers and near strangers, etc. Gygax writes the DMG with a bunch of advice that assumes that chaotic environment is more or less normal, and in that context the seemingly weird rules about having designated callers, training, alignment, and never giving the players an inch start to make sense.
I think alignment in those early games was something like alignment in Nethack, and it made sense in that context. Gygax was tracking alignment loosely based on actions that were explicitly against your alignment - saying using poison as a 'lawful' in either system or withholding treasure from your fellow party members. As in Nethack, there is an intended loose balance between the mechanical advantages of different alignments, and a player that is attempting to garner the advantages and avoid the penalties of multiple alignments is basically cheating, and no cries of "but I'm just playing my character" or appeals to thepian virtues overturns that fundamental assessment.
In practice, the hard lever of class or level loss isn't one that Gygax needed to pull often, because he had the more subtle lever of increased training time and costs that would take a character out of the game for an extended period and force the player to roll up a replacement starting at level 1. But that lever wasn't one that fit with the usual way tables that had a small number of close friends and lacked Gygax's rigorous dungeon and delve format played. Training time and costs were the one rule I never saw enforced by any table I played with.
Much of your discussion makes it seem like you came into D&D late in 1e or in 2e, and 2e had a very different write up of the alignments than classic Gygax. I don't think any writer - TSR or WotC - has done a really good job of explaining what the alignments mean, and I think the situation has been made worse by the fact that each writer has subtly disagreed with the others. Worse, each writer has had their own biases that introduced subtle incoherence into the description, starting with Gygax's tendency based on his background to both treat Lawful Good as 'more good' and 'Chaotic Evil' as 'more evil', and yet at the same time present rather scathing critiques of lawful good.
Or in short, I think of alignment as being one of those things that can go very right and can lead to a lot of cool play, but in the hands of many DMs left with little or even poor guidance - like the guy who claimed Lawful Evil is a contradiction (because in some canonical writer's write ups it actually is!) - tends to go very badly.
