Yes! I was just thinking about this the other day and I'm excited about what could possibly happen! You have already come up with so much stuff and here is some more minor things to think about: What if as this idea progresses, You have the option to MOVE UP. Just like you get promoted to a member in the council of light later in the game, you could be Morganthes top soldier and you get your own band of dark soldiers and same for the light side! And if you wanted to go further, you could overthrow Morganthe in the quest for power and evil just as she did kind of did to Ambrose! It would definitely be a change. instead of being told that your excellent and powerful, you actually get to see it and feel it for yourself. As you move up in rank you get more options to different things such as perhaps your own cheats? or even something so little as looking up how to control the "forbidden magic" that you were SPECIFICALLY TOLD NOT TO DO. I think KI could deffinitely role with this idea. I would love it if Wizard101 could get a little more personal and open wizards up to more choices, choices you can make on your own! Good vs Bad is just ONE of the many ideas that can happen.
P.S. Yes this idea will take a LOT OF WORK but just think about what KI can accomplish in a measly 2-3 hour update! This one in particular might take Wizard101 offline for a couple days but just imagine how many more THINGS YOU'LL BE ABLE TO DO! Personally, I think that this is something that is much needed and worth it. I fully support this 300%