While I'm not in the camp that Sephiroth was a good person, before or after his descent into madness, I can't help but notice that every example you listed here for the guy is POST-cray-cray. Sephiroth as presented in most of FFVII was clearly portrayed as being off his rocker. Applying labels like "good" and "evil" against a mentally handicapped individual is treading in some muddy water. There's a reason why the insanity plea is a valid defense in a court of law! It's better to think of crazy Sephiroth as a rabid dog; he's dangerous, he shouldn't be allow to run around loose, and he should be put down as soon as possible. You wouldn't call a rabid dog "evil", persay, but you still need to stop it.
If you're going to claim that Sephiroth is evil, you need to examine him BEFORE he went off the deep end - and that's where the fangirls find fertile soil for their fiction. The game doesn't delve deeply into what Sephiroth was like before he went insane, but we know that impressionable young boys like Cloud idolized him. That indicates that he PROBABLY wasn't a gleeful baby-murderer or anything like that (or, at least, if he was Shinra kept a tight enough leash on mass media to keep that little tidbit from becoming public). He was clearly good at his job. His job was working as a soldier for Shinra, and it was a job he'd been raised to perform since his birth. While WE know Shinra was bad news, they kept a decently positive public image; it's not clear how privy Sephiroth was to the darker secrets of Shinra. Certainly there were at least some secrets being kept from him, as his swan dive off the deep end was a direct result of uncovering some of those secrets!
How would Zach and Cloud have reacted, if they were completely insane? That's hard to say, but I wouldn't say that burning down a villiage is necessarily out of the question. It pretty much depends on their own brand of insanity.
In any case, the insanity defense does not work for the Garlean Empire. There's absolutely no indication that the previous or present emperors are insane. They are ruthless and ambitious. However, they ARE concerned about the welfare of their citizens. More than that, that they've established a system whereby any individual under their rule can gain prestige and recognition through hard work (specifically, through twenty years of military service). The problem is that they have pretty much only one solution to any given problem: subjugate it. In the case of Beastmen, that subjugation includes genocide.
The policy toward Beastmen is probably the greatest evil the Garleans can be accused of, and it's unclear how that policy might change once it becomes known that any schmoe with a box of crystals can summon a Primal if he believes hard enough. Their expansionism is another evil; they are clearly willing to kill as many people as it takes to put themselves in charge - though, that said, they are only likely to kill folks that resist them, unless you're a Beastman in which case they'll kill you whether you resist or not.



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