Curse on that sexy playtest material from distracting me, when there's posts I wanted to answer.
Different places for different campaigns. In most games, demons and devils are probably irredeemably "made of evil." But that's not the case in Planescape, which traffics in tropes of cosmic morality and where demons and devils are both just extremes of a particular philosophy. Not everyone thinks that is fun or awesome, so that needn't be true in every campaign, but it can be true in PS.
The flip side of "monsters are people too," is, of course, "people are monsters, too." The implication being that any person has in them the capacity to be eeeeevil, and so those elves can be slavers and colonists and bigots, and those dwarves can be terrorists and war-mongers, and those halflings can be greedy, petty, and cruel...
It jives more with a greyer morality in the setting, which can create a lot of interesting conflict, and helps mitigate the heavy-handed morality of D&D's alignment system: Alignment becomes less about what you are and more about how you act.
That's not always desirable, of course, but for a lot of games, that's stuff they like to play with. For some games, the question of "what can we kill? under what circumstances?" is something they want to explore. Not all games, but certainly some!
I think there's no disagreement between us here. The collective of PC races and plenty other creatures provide numerous shades of grey and I like my shades of gray.
I just don't think adding absolute good and absolute evil creatures diminishes the element of shades of grey.
If you've seen numerous time what absolute evil creatures gnolls are, what do you do when you meet a group of gnoll mercenaries just minds their own business. What if a tribe of gnolls hails the PC's as profecised bringers of good omen and treats them like kings?
If you know an order of knights is secretly enthralled to Pazuzu, do you deny theyr freely granted help?
What about those hound archons guarding that one room in the dungeon. They are objectively good. But they deny you passage and it wouldn't actually be killing them to attack.
That's a perfectly reasonable desire, but consider that by making the 'monsters are people too' approach universal you will inevitably end up with both. This is because the PCs' culture, assuming it's not highly sophisticated, will almost certainly regard some sentient beings as monsters. Also, beings who attack the PCs, or threaten them, are very likely to become regarded as monsters to be killed, at least in that moment. It's kill or be killed.
Our own world contains only people. But at many times and in many situations, ordinary human people have treated other ordinary human people as monsters to be shunned, denied basic human rights, ethnically cleansed, or killed. If that can happen in our world, how much more easily could it happen (even without alignment) in a D&D-style world, where physical and cultural differences are greater?
Killing creatures in game because you think they are evil monsters is different from creatures actually being evil monsters though.
To take an example from my homebrew, some orcs in certain places are extreme racists. Other people in certain places are very racist against orcs. Being or not being an orc will get you killed or enslaved. But in other places both orcs and humans hold noble titles and stand side by side. Because neither is always evil and the differences can be overcome.
Gnolls on the other hand, might be thinking bipeds, but still absolutely evil. When you hear a fallen empire used gnoll troops in large number, it propably wasn't very nice.
I hope I got your point and brought mine across.
I think there's two separate things here:
One is the difference between hostile and evil. A Drow might want to capture me, sell me into slavery, and then sacrifice my heart to Lloth - that makes the drow hostile, but does it make the drow inherently evil? After all, plenty of human cultures with good, evil, and neutral people in them practiced slavery and human sacrifice. Was every Aztec evil, or every Gaul or Carthaginian?
This is why I don't believe saying a creature is inherently evil makes it less interesting. If drow just do bad things, they are just like bad humans. If drow do evil things because they have a deep inborn sadism or similar, that has a larger effect on the game.
The other is the difference between what we might call moral evil and what we might call metaphysical evil. A human psychopath we might describe as morally evil, as someone who's doing bad things because they want to, because they can. Whereas a demon or zombie is an aberration of the natural order by its very nature, something that should not exist but is being brought into the world by some perversion of the laws of nature.
Definitely. If we say a creature is always evil, there must be some metaphysical element to them and a good setting reason. Considering how many creatures in D&D are products of magic, one might say some creatures need a reason to be free in their moral choices!
One fantasy system that I think has a really good handle on this is Warhammer Fantasy Roleplaying. A Chaos demon or the Undead are metaphysically evil - they are matter twisted by a force outside of the physical realm into something otherwise impossible. A Chaos cultist by the contrast made the moral choice to sell their soul for power.
I love the Warhammer settings (fantasy and 40k) for their use of moral. Almost everything is in shades of grey, but then there are beings of absolute evil (and law and chaos) as well. The only thing lacking is pure good, which is admittedly hard to do, but would serve to reduce the grimmdark a bit. Also they meld chaos and evil a bit to much for my taste.
I would actually take your distinction WFRP even further. Demons are beings of pure evil manifest. Cultists are people who made the moral choice to be and act evil. But in between those are the children of chaos and the undead.
The children of chaos (beastmen, skaven, harpies etc) are my favorites, creatures that originate and exist in the natural world, but are corrupted behind the point of no return. These creatures are in every way distinct from demons, yet there is no denying that they are "always evil". Humanoids and with various characteristics to boot!
These are very much my model for inherently evil humanoids in my games.