Two households, both alike in dignity,
In fair Verona, where we lay our scene,
From ancient grudge break to new mutiny,
Where civil blood makes civil hands unclean.
Alignment is one of those things… you'll get 100 different answers from 100 different DM's how (or if) they bother to use alignment in their games. 95.32% of the time I don’t bother using it as a behavioral yardstick; I usually have a simple Law vs Chaos axis and treat alignment as a kind of supernatural fingerprint; anything with a divine power source is Lawful, and arcane is Chaos, and all non-magic characters are Neutral, and it has nothing to do with moral choices.
Today I'm suggesting we look at alignment as "dramatic allegiance". To facilitate the discussion, I'm going to borrow some screen writing and fiction terms - dramatic characters, iconic characters, procedural scenes, dramatic scenes - all concepts picked up while listening to Robin Laws describe narrative gaming. Note: I'm not turning in my old school ID card to be a dramatic story gamer, just borrowing some lingo to help the discourse. Dramatic characters, the type we most often see in movies and TV, undergo story arcs where their viewpoint changes over the course of the story; iconic characters are steadfast (action heroes). Likewise, procedural scenes are action-oriented and built to get things done, dramatic scenes are emotional and character oriented. A dramatic character is usually pulled by competing poles over the course of dramatic scenes - such as, the need to earn the trust of a spouse, versus the need to get revenge on their enemies. A dramatic character wrestles with those poles, lying to the wife in order to go and whack a rival; an iconic character doesn't vacillate.
Alignment as Ethos or World View
In this view, alignment is a (dramatic) behavioral choice, a way of indicating which side you're on like an affiliation. Lots of fantasy features a conflict where a dramatic character either straddles the line or switches sides in the conflict as an external symbol of their changing viewpoint. Anakin Skywalker starts as a Jedi Knight, seduced by the Dark Side to become a Sith, then switches back to the light side of the Force when he's been saved by Luke. Snape is a Death Eater who covertly joins the Order of the Phoenix in the Harry Potter series. Stephen King's Dark Tower features feudal gunslingers facing off against the Crimson King and his allies, the Man in Black and Farson the Good Man. Even in Lord of the Rings, Sauron starts as a being of light who becomes one of Morgoth's lieutenants in the First Age. Lots of Judeo-Christian folklore features themes of the fall from grace and the possibility of redemption - and consider romances like Tannhauser, or the tribulations of the knights during the Grail Quest, not to mention the historical lives of many saints. The chivalric tales of Arthur and Charlemagne I've been discussing feature the Christian world in conflict with the pagan world, the Muslim world, or the realm of Faerie.
In "Appendix N" literature, I've always had a soft spot for The Chronicles of Amber, where members of the House of Oberon switch allegiance to the Courts of Chaos, or choose to defend the Pattern. I take guilty pleasure in the Dresden files series of novels, and Harry Dresden's allegiance ends up ping-ponging all over the map (these days he's on the outs with the wizardly White Council, and has sworn allegiance to Queen Mab as her Winter Knight - quite a soap opera.) Alignment in fiction tends to be fluid. It's also true that these conflicts frequently feature only two sides, simplifying the conflict for the reader.
In all these cases, alignment combines elements of political affiliation, group membership, social goals, and values - it incorporates many more distinctions than a vague conception of 'good' or 'evil'; the nuances of affiliation are elaborated by the fictional world and the power structures.
D&D as written isn't a great game for dramatic role playing; it's not laden with supportive mechanics for governing a behavioral scale, like Vampire's humanity path or virtue paths, or Pendragon's traits. In fact, alignment change (by-the-book) authorizes the DM to drop a giant hammer that nerfs the character until proper atonement is made - in the 1E DMG, punishments are draconian and swift, involving loss of level and the wrath of god(s). In other words, D&D characters are meant to be iconic, unchanging action heroes. You make a choice at 1st level and stick to it, and see it through to the bitter end - or else. The mechanics governing alignment are otherwise limited to esoteric alignment languages (ignored by all), the insufferable paladin or druid requirements, and various detect and protection spells.
Considering how much value old schoolers place on emergent character, it's surprising alignment is set for life at character creation. We joke about not naming characters until they survive to level 2, but the unchanging life-long value system of these un-named characters is set before a dice is rolled during game play. Shouldn't these allegiances and world views materialize through play?
Mechanically, one of the only D&D settings I can recall that presented dramatic alignment shifts in the way that mirrors fiction was Dragonlance - it had those White, Red, and Black robed wizards and the moons and the towers of High Sorcery. Of course, Dragonlance was a setting based on a series of novels - alignment was a vehicle for the fiction.
I've got some ideas on implementing dramatic alignments - grist for an upcoming post. In the meantime - how about you? Have you used alignment in a dramatic, literary sense, with two sides both alike in dignity in fair Verona where we lay our scene - something like the Jedi vs the Sith, or the Pattern vs the Logris, encouraging players to switch allegiances as appropriate when their values change?
Tl;dr: D&D alignment choice should be fluid to support emergent characters, and involve nuances of the fictional setting rather than bland, generic descriptors like good or evil, law or chaos.