Would be cool with a third faction for the truly dastardly moustache-twirling evildoers.
The undead who blight everything and perform unit 731 experiments for afternoon entertainment. The orcs who slaughter their way through a continent. The trolls who perform human sacrifice. The man'ari eredar. The worgen that feed on human flesh.

They should be allowed to be evil without the narrative constantly trying to redeem them, and having them do evil shit like burning down a world tree wouldn't piss off the players because they signed up for that stuff.

The problems are
1. The two-faction divide is probably so deeply rooted in the game code that I can't even imagine how many things would break.
2. How would this faction exist for more than 5 seconds before everyone tries to kill each other, or everyone else works to take them down?