[Nerull]

An alternate solution (VERY complex, so I warn you in advance) is to have "good" and "evil" be defined for each of the different belief systems in the campaign. For example, you would set up a "moral code" and "immoral behavior" for each of the different faiths and factions that the PCs would run into. Behavior that is "good" for one faction could be "evil" for another faction. This would come back to more of a real world setting; for example, in Middle Eastern countries, it was perfectly acceptable to cut off a thief's hand, but in another culture they would view that as barbaric and wrong. In this system, what faction a paladin belongs to defines his moral code. You would literally have paladins of each faith/faction (I would recommend "tweaking" the class for each one, to fit the faction). Two paladins of opposed factions could meet on the battlefield, and be able to smite and cast alignment spells against each other (same with clerics, etc.). Tracking alignment would simply be a measure of how the player sticks to the code of his faction (even a chaotic faction, whose code might simply be to live free of restrictions, etc.). Think about current events and the whole Christianity vs. Islam issue, and you can see where this would work.

Of course, this would mean a LOT of work for the DM, but it can be handled.

Oh, while I grew up with 2nd edition, I prefer 3rd edition. A lot more flexible, and to me makes much more sense (I understood the THACO and AC system, I just never liked it much).