The main problem with the two-axis alignment system is that it’s used for two things it isn’t great for: as a way to describe conflicts and coalitions (the “team” use of alignment) and as a way to regulate specific behaviors, rather than describe general motives (the “code” use of alignment).
Let’s look at the team use first. We all remember those stirring moments in our own AD&D campaigns where the High Elves teamed up with the ogres and demons to defend the cause of freedom against the Lawful empire of paladins, devils, goblins and dwarves ...
Uh, what? Unless you were playing in a very unusual campaign, individuals and countries usually formed alliances along the Good-Evil axis, not on the basis of Law and Chaos. Making the alignment diagram work more like this:
Here, the main fight is between Good and Evil, and Law and Chaos are just disagreements in how to pursue your side's agenda.
Now, there are other fantasy settings that squash the diagram the other way, going Moorcock rather than Manichean:
For example, the Warhammer world pushes the fight of Law against Chaos to the front. Chaos is pretty much always evil and represents the corruption and magical alteration of the very universe. The people who fight it may be kind or cruel, cooperative or selfish to various degrees, but those differences are on balance less important than saving the world from a tentacled, fiery ruin.
(And there is no Chaotic Good there because Chaos means very different things in AD&D and Warhammer; in AD&D it means you believe in loose social organization; in Warhammer it is the crawling crud from beyond the edge of the world. But that’s a topic for another time.)
So why the one big axis with a few lesser choices within each side? Quite simply, it’s how real-world multiplayer conflicts work. In a three or more player game, two players who team up or even just truce have a definite advantage, defeating in detail the other ones. Unless those team up themselves. Either way, the game quickly resolves into either a two-sided game or a two-player game. Players may waver or switch sides, but a true three-way or four-way fight is very unstable and short-lived.
This strategic wisdom, perhaps, is reflected in people’s fictional preference for stories with two sides, instead of a multitude of conflicting interests in an ever-shifting web of intrigue. I know you’re thinking now about the wildly successful World of Darkness and all its faction-rich progeny, but these are the exceptions that prove the rule. Players approach those games first as a way to choose an identity for self-expression, and the kind of conflicts that occur build themselves around that. Not to mention, you know, how all those clans line up into the Camarilla and Sabbat.
Some of the contributors to my previous post’s comments, and a number of recent original settings for “old school” gaming, look on alignment as just a way to show which "team" a character belongs to in a two-sided world struggle. Indeed, the Team Alignment approach is a very easy way to handle this thorny but traditional trait in a D&D game.
Team Alignment shows that a being has decisively chosen one of the sides in the Great Fight – or was just born that way. It shouldn't be easy to change, especially not if there are rules in the game that care about alignment. But really, those rules should mostly be there to smite the extra-special Team members who are magical, or have made themselves so, not the poor mortals who happen to swear by one name or the other.
Team Alignment doesn't reflect the motivations or enforce the behaviors of individual characters. Sure, the teams have colors and mascots that play on long-standing moral ideas. The White and Silver Unicorns meet the Red and Black Bats on the Fields of Armageddon.
So much the more interesting, then, when the self-styled paladin of Law behaves in a corrupt and selfish manner, or the Chaos-born creature shows pangs of conscience. Perhaps appearances are only skin deep, and the only divine justice for the wicked archbishop's sins awaits him in heaven? For Team Alignment, the ambiguous labels "Law" and "Chaos" fit better than "Good" and "Evil," which are full of expectations about how people on each side should act.
So what's missing from Team Alignment? For some people, nothing. For others, the very moral dimension it gleefully casts overboard. This leads us right to the next failure of alignment that AD&D walked into: the problem of regulating behavior.