I'm A Banana
Potassium-Rich
Why, then, given their vast numbers, have the fiends of the world not succeeded in having the Lower Planes relabelled "good" and the Upper Planes relabelled "evil"?
Arguably, this is what the yugoloths are up to.

More practically, three reasons:
- Because they don't all agree on what it means to be "evil" or "good." They don't share a belief. ("An ordered society is essential for true evil!" / "No! One must be free to choose evil for oneself!")
- Because they agree that they are evil, and just see that as a valuable thing. ("If you must call it evil to enjoy oneself, then I suppose I am evil! But what does that matter? What does that change? Yes, I am evil. Your point is...?")
- Because their "vast hordes" don't outnumber the neutral and good people in the world who dub them "evil." Most people in D&D AFAIK are "neutral," and they get to add to their number all the hosts of the saints and angels who all condemn these actions as evil.
Probably other reasons, too, but those three in aggregate are certainly enough for me to accept the premise of fiends being evil.
I agree with The Shadow that this seems a Nietzschean idea.
I probably differe from The Shadow in thinking that there are interesting, even plausible, elements to the Nietzchean idea (it sees development in a range of other modern philosophers: the existentialists; Foucault; Ayer and Russell; Simon Blackburn; etc). But it needs a lot of work - if value commitments are a mere matter of taste, then killing in pursuit of them seems outrageous - it would be killing others simpy to satisfy one's own desire, which in D&D terms is practically the definition of evil. So everyone woud be, in D&D terms, evil!
Evil only has this definition because that is what people think it is. Change the way people think, and slaughter your way to sainthood!

I don't think that D&D has the conceptual resources to easily articulate and make sense of a more sophisticated and plausible Nietzschean approach. And also, certain D&D character classes - especially paladins, monks and samurai - make no sense in the Nietzschean framework. It's no coincidence that fantasy authors whose outlook is closer to Nietzsche (eg REH, Moorcock) don't have paladins or monks in their fiction (in REH, for instance, there are no D&D-style priests, just more-or-less cynical magicians).
Depends upon what paladins and monks think of themselves, and what the general mass of the multiverse thinks about them, I suppose.
The figher/cleric in that episode found himself in a situation in which he could not realise both honour and justice, and so had to choose. (He chose honour over justice.) That's "shades of grey", but has nothing to do with "good is what you believe it is" - the reason the choice matters, and is hard, is because the character (and the player in playing the character) feels the pull of both values as real and g
I think it's actually quite hard to articulate how the PS idea is shades of grey at all - if good is nothing but what I desire, where's the grey? What's the measure by which the greyness of my desires might be judged?
I suppose we're quibbling over semantics on this point, but the idea of a moral grey area to me is a place where the morality is not clear-cut, where good and evil are not able to be told apart at a glance. That certainly includes a world where good and evil are capable of changing their definitions. If the only choice is between two clearly good things (honor or justice?), it's just a matter of martyrdom -- enduring suffering for a good result.
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