What alignment is Oona?

[Worldsong]

The Dwarves are supposed to be honorable to the extreme. Why on earth would they program in loopholes to allow themselves to be corrupted like that? Even ignoring the dangers of outside hostile parties coming in and meddling with their politics (which we know for a fact can happen, because it did on screen), deliberately enabling ways for you to act dishonorably seems like a bad bet, overall.

And now we can stop ignoring the fact that deliberately putting in those loopholes paves the way for hostile outside parties to come in and subvert your politics. The council would basically have to be idiots for those loopholes to stand.

I wouldn't bet a lot of quatloos on the idea that it's unlikely that a bureaucratic/political body would allow a flawed set of rules with exploitable loopholes to keep existing. Especially since said body belongs to a race which has a reputation of being so Lawful it hurts so anyone who proposes altering the laws could just get accused of being an anarchist who's inviting chaos and disorder.

As Grey Wolf has said, being Lawful doesn't mean you're Good. More than that, being Lawful doesn't mean you're automatically smart or rational.

Evil means selfish, not stupid. We know from Hilgya that overtly evil dwarves prospering in the afterlife is unusual because being overtly evil like that also means being overtly dishonorable. Which is a bad bet. So even if theyre selfish and power grabbing, its still in their best interests to play it straight, or at least protect the legitimacy of the institution as a whole, because otherwise they get the bad afterlife, lose all their power as the system is replaced with one that actually functions again, or both.

I believe Hilgya's lesson is specifically that Chaotic dwarves tend to get in trouble with the afterlife. Being honourable is a Lawful trait, not a Good trait. Chaotic Good characters can backstab everyone to hell and back and it doesn't hurt their Good alignment as long as said backstabbing is for the sake of doing what they perceive is the right thing.

Of course I know a lot of people think that backstabbing is Evil but honestly that sounds more like Lawful Good having difficulty recognizing Lawful and Good as having different criteria.