Of course the Fey have morals, they just don't have
our morals. Our difficulty comes from the fact that we, as George Bernard Shaw once put it, "Insist that our rules and regulations are the laws of nature."
I've been thinking about this subject for awhile (thanks to a playtest over at the
Pyramid ezine at
Steve Jackson's Place), and I've come to the conclusion that Col. Pladoh's other "alignment" system works better for them. In this system (from
Dangerous Journeys: Mythus) you have five ethoi: Sunlight, Moonlight, Balance, Shadowy Darkness, and Gloomy Darkness. The Ethos of Sunlight is
mostly good. But as the Sun helps the crops grow, so it can wither those same crops unless the farmer takes measures to protect them from the Sun's heat. (Try walking under the desert Sun without a hat. I have. The Sun's rays do indeed have a physical presence that pierces the skull.)
At the same time, while the Ethos of Gloomy Darkness is mostly evil, there are times when you need the dark to heal. When you need things dark, quiet, and still to recover from an injury or calamity. When only the sable veil can ease the heart and soul, and thus allow the pain to slip away.
(You don't want me to get started on the Ethos of Moonlight, I might get poetic on you.

)
As to capering mindflayers. In my experience a mindflayer usually capers while chanting the following, "I get the frontal lobes! I get the frontal lobes! I get the frontal lobes!..."