I don't know. Seems like you might be heading towards a rather antagonistic DM vs Players type situation. And I doubt whether 'picking on them' is going to help the creation of good feeling and fun.
If I was you, i'd want to know what your other players thought about the game/situation. And I'd want everyone to know how I felt about things. Maybe you don't have that level of confidence with these people. They are perhaps strangers as opposed to friends you know that you game with as well?
I had a problem with a new player who was questioning my decisions and rulings even the actions the monsters were taking, interrupting the game constantly. Arguments began to creep in amongst players as well. So we all had a talk about what we wanted from the game.
Her argment was that she was trying to understand the game and apart from that she was a 'conflictive' person by nature. My counter argument was that I had all the time in the world for her to question any of my decisions after the game and between sessions and I'd happily talk it out with her. But not at the table for the benefit of game flow. I explained that i didn't enjoy it and that it was taking away from my enjoyment of the game. It just wasn't fun for me.
She struggled at first with it, but she made an real effort and soon became one of the most engaged players at the table and away from it.
I think the unspoken social contract is really important for all the players to buy into. Part of that contract consists of the group deciding as a group the direction, the norms and the kind of game they all want to be playing and working together to achieve that goal. If your not feeling everyone has signed the unspoken contract... I think you need to speak about it.
If that doesn't work... I would avoid the 'picking on' part; I think a bit of hardball is fair game, especially if the PCs are being openly stupid. Let the consequences rain down, but on all of them. Guilty by association. No pressure is greater than internal peer pressure. And like Solvarn says, hit them from all sides. Goodies, badies, greedies.
But hopefully it won't come to that.
I kind of have the feeling that your real problem is not the 12 year old kid. It's his brother. The fact that he hasn't pulled his little brother's head in. The fact you describe him as defensive when you broach the subject. The fact that he was DM before you and declared that it was fine to play evil. The fact that he is calling you up to tell you he is going to play an evil avenger himself... It's like he thinks it's his game and you're just providing a role in order to allow him to play.
So you need to find out what the other players think, find out where their loyalties lie, and then lay out the ground rules you want to be implemented into the game. You could even start preparing a new campaign... say... Dark Sun?
When you're ready, scrap the old game, have everyone roll new characters and set the new ground rules for the campaign. Include cooperative play between party members as one of them. Also, in Athas, as far as I gather, there is little room for alignment; there is only smart or dead.
