That's something your characters should decide.
Especially if you give "free reign" to play evil characters - they should create (part of) their back story together. Otherwise, I predice in 2-3 sessions they will start to murder eachother, becasue "that's what their character would do".
that depends on the setting, the people, the monster, and how immersive your DM is.
I have DMs where I know this won't be a problem at all.
I have DMs I know I don't have to try and show my face or get attacked by city guards.
again, up to the groupo.
No. That simply doesn't work, because players are human. It's supposed to be a game, and everyone should be having fun. If there's someone who's definition of having fun includes "screw the rest, I'm having fun in spite of everyone else", then that person has to have a chat with.
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If you're the lizardfolk player in this scenerio ... talk to the (out game) group becasue they go no reason to accept homocidal monster in the (in game) party
If you're the paladin player of this scenario ... talk to the (out game) group, because I got a feeling either your paladin will fall or you'll end up killing that lizardfolk. Find a reason to work together, or solve this issue by talking person to person.