I certainly don't want this topic to degenerate into any kind of real world religious/political discussion or anything. I'm just trying to to make sense out of a game about magic and dragons!
Thanks for everyone who has given their thoughts on the matter. What still doesn't make any sense to me, would be the the 'casual believer' or the ones who only pay lip service to the gods. Say have a large village or town where most people worship Pelor and the Clerics help see to everyone's needs. I mean, wouldn't everyone eventually genuinely worship or be a cleric of Pelor until the goverrnment would basically be a Theocracy? Why aren't all governments Theocracies? I guess I'm looking for in game reasons. How would a couple of happy go lucky rogues justify raiding the temple of Paladine so they might have a night out on the town with their spoils (assuming they don't have kind religious thinking behind it whatsoever)?
If you watch The Tudors, I'm not so sure the government wasn't a Theocracy, from a certain standpoint. religion and government were entwined, and if nothing else, religious faults were used for political leverage.
As for your rogues, I'd assume they are people who haven't thought deeply on religion and their actions. Much like kids who just do things impulsively, without thinking through the consequences. As such, they go to church every churchday, and don't think of themselves as Asmodius's servants, but they don't think of their actions in relation to the harm they are causing.