What's wrong with this? Within the confines of D&D, it makes sense. Law is associated with people and society, chaos is monsters and sorcerers and elder gods and crap like that. Law is organized, chaos seeks to destroy everything. Do we really need a Good-Evil axis as well? Using a Real World view within a game is doomed to failure. How many times do people have arguments about whether or not it's evil to kill orcs? Baby orcs? Are orcs inherently evil, incapable of performing good acts? That's an ethical question and quite honestly not much fun for a game, at least for me. But it's also irrelevant if we ditch the Good-Evil axis and focus on upon Law-Chaos. Orcs are chaotic and seek to bring down civilization. Killing orcs makes perfect sense, there's no need to worry about such actions being good nor evil. It also means there's no need to define rival human nations as good or evil, either. Yeah, they fight each other and disagree on everything, but they'll always join up to destroy orc settlements that threaten their lands. Further instead of pigeonholing PCs into a specific, required behavior, we allow them act more "realistically". This does of course mean chaotic PCs are actually on the side of the monsters; or maybe they're just crazy. Being chaotic doesn't mean you support a particular group. It's entirely possible within the game to be chaotic and truly enjoy society, yet bring upon its downfall. Thieves thrive only within lawful environments, but are directly at odds with law. I suppose they're chaotic, but less extreme than orcs. And no one would be that upset if you killed a bunch of thieves who were threatening the city, would they?
So...suppose we dump Good-Evil from AD&D. Now what? Nothing changes, really. The problem with paladins and assassins working within the same party go away as they're probably both lawful anyway. Yes, assassins kill people for money, but if they're using their talents to kill orcs, why would a paladin care? Really, getting rid of the ethical component of alignment makes the game much more gamey, back to its roots in wargaming as opposed to a thin excuse to use funny voices and engage in amateur theatre. It turns back into an Us-vs-Them boardgame, people vs. monsters. It's also much more human-centric. Elves and dwarves and hobbits, yes they like humans, but they're still "different", and thus not trusted. Humans are primary with demi-human races taking a backseat. And honestly, that resembles what I want out of a swords and sorcery rpg...evil human sorcerers and strange monsters working together to bring about the downfall of humanity, a motley group of heroes banded together to thwart the threat. All that other tripe like half-dragons and gay teleporting elves can stay firmly within the realm of "modern gaming".