Thanks to AKMA for pointing to this post on the issues of choosing to play at evil in online gaming. I haven't played World of Warcraft, so I'll have to take Castronova's word on how things work there.
I used to play online games quite a bit, namely Everquest and Dark Age of Camelot. In Camelot there were no particularly evil races, simply three nations of sorts all in perpetual war with the others. In Everquest, it was a bit more complicated. You could play an orc or a troll (or a dark-elf), which were considered "evil" races, but the only real consequence of that was that you had restrictions on trading in most of the cities. In terms of gameplay, it was pretty much all the same and evil races joined up in parties with good races all the time.
But I think Castronova is quite right to be asking the sorts of questions he is. I have found that gamers take very little time to reflect on the ethics that might be involved in playing their games, aside from the issue of what constitutes cheating or fairplay within the game. As I suggested in the comments on AKMA's site, I think this lack of reflection may be defensive, as players today often spend huge amounts of time within online games and don't want to consider the idea that there could be something morally vicious about doing so.