My major issue with karma systems is that they need to be entirely under the hood for me to not have my current karma level dictate what my next action is going to be.
"Oh, I want to blow up Megaton, but I don't want to be entirely evil. Better go do a bunch of quests where I free slaves and hand out free ice creams to little kids first."
Not only that, but no game has managed a system that makes people react to my actions realistically. No matter how many people I've murdered, no matter how much I've stolen, I can make everyone forget about it by simply going out and volunteering at a soup kitchen for a few hours. Suddenly, BAM, I'm the cherished hero of all the land again.
On top of that, there's very little middle ground in a lot of games (I'm looking at you, Fable and inFamous). Too many times am I asked to either give my kidney to a starving orphan so that he might live another day, or be forced to kidnap him and take him to my rape dungeon to be skinned alive. What if I just wanted to politely decline the poor kid's offer, on the grounds that I really liked having both kidneys, or helped pay for the kid's treatment? How come I had to either be a saint or a total pariah?
Not to mention, to specifically rag on Fable again, too many games have a way to farm positive or negative karma points. If I'm feeling to nice in Fable 2, all I have to do is get accepted to a certain death cult, and then lure a few of the unimportant commoners down into the basement of their lair to play Wheel of Misfortune.