Perhaps it would work best if it were set up where every mission/quest had two ways to play, good and bad (hopefully some gray area, too). Then, much like the Luxon/Kurzick points it determines you alliance. Then the missions would be more like PvP as players progressed. Once the main story ended, there could be a few repeatable missions to optionally change your alliance.
If it could be implemented without much problem, perhaps a few non-instanced explorable areas where a "war" between the two sides could take place. They would be optional, of course, but as one side does better they take control of the other towns, etc.
Of course I'd like to see a game where good and bad weren't as clearly defined; seriously, it almost never is that way. I mean, sure they aren't good, but the bad guys must have some reason for doing what they are doing (the humans of course, I can't say that any evil gods necessarily follow logic). This might allow for a 3, or maybe even 4 way conflict.
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