This discussion of good and evil and shades of grey reminds me of an idea I had for a Natural 20 book
To get back on topic, and to give away some of my idea, I think the first step in establishing a moral (or immoral) game is to establish exactly what is a moral act in your campaign.
For instance, it sounds like in your home game, there is a clear delineation of certain creatures or persons being definably Evil, and that fighting / killing Evil is definably Good. That's a perfectly good way to run a campaign, and it fact it's pretty much the assumed standard, per the PHB or DMG.
On the other hand, in your college game, you've muddied the waters a little (in fact, a lot). It's a lot harder to choose the side of Good, since it is much harder to identify - assuming that it can even exist in such a politically fraught environment. And when things get muddy, is it any surprise the PCs are less than squeaky clean?
Of course, this is also a perfectly good way to run a campaign. In fact, my long-running and nearly over 2nd Ed campaign has played on this issue a number of times: should the PCs do the expedient thing or the noble thing? Should they accept a little evil in exchange for help against a great Evil? That sort of thing. (My new 3E campaign, on the other hand, is far closer to the archetypical "killing Evil is a Good act" approach).
However, it is obvious that you would like to get them back onto a more altruistic path. How do you do this? Well, a number of people have given examples of things to do, but it basically comes down to one concept, IMO: in order to sway them back to the path of good, you need to offer them a chance to achieve something that is
clearly and definably Good.
The goal you have already given them; find the bad guy and kill her; isn't at all bad, but in a morally grey world such as yours, it can't be seen as unarguably Good, either. I think that if you can find something that the group can clearly see as being the Right Thing To Do, they may well go for it. Becoming mercenaries sounds like it was a mechanism for avoiding hard choices. So try giving them an easy one, and see what happens.
As an example, maybe consider having them stumble across a group of refugees of all nations, displaced by the fighting, who have been forced to band together in a hostile wilderness area and who have begun to co-operate. Then threaten this group with some clearly evil (and totally
non-political) danger, and see how they react. Give them a chance to get a real and satisfying victory for Good (perhaps with the establishment of a first harmonious village that includes members of all three nations), and you might be surprised how willing they are to risk themselves to do more such things.
Those are just some thoughts, anyway
