I think the major problems with the alignment system within D&D is that the writers, players and DMs generally lack the philosophical and theological rigor to grasp at the concepts and the nuance to put them into play.
For example, lets say an angel is a being of pure neutral good. It is also going to be an inhuman monstrosity because no human can ever be pure good, at best we can attempt to be good. A being who is infinitely caring, infinitely just, and will never be angered by or judge you by your frailties only your deeds is almost incomprehensible to the average D&Der. Angels never hate you for your sins even if they must destroy you for them but they also can't have true empathy or sympathy; they don't have a point of reference to understand temptation or imperfection within themselves. They are unchanging cosmic forces who's very goodness is definitional for them. And they are slaves to this alignment, they cannot go against it and cannot see outside of it. They are to the human mind utterly insane.
The thing is that this is conceptually so much more interesting than the bland shit that the Core and Splatbooks try to shove down our throat. How fascinating would it be if Paladins are trying to be like these angels, beings they can never hope to emulate or even understand? Instead of being a lawful stupid goody-two-shoes crusader the Paladin would now be an encapsulation of so much of human folly. Attempting to be something it cannot be and something that if it really stopped to think about the concept it would never want to be. For the Paladin choice is so necessary, evil doers need to choose to do evil and good people need to choose to do good. His self-validation comes from the fact that he is overcoming his human tendencies towards selfishness and greed and hedonism at the expense of others and inspires this in others. Angels don't make this choice, they simply are good. Angels don't need to inspire others to good, they simply destroy evil and forgive the lesser trespasses. For all the Paladin tries to be the angel the angel is the antithesis of everything that makes the Paladin good and holy and righteous. The Paladin struggles and claws towards goodness and wrestles with evil everyday. The angel simply is.
And by the same token, Evil (big E) is not that bad. Without choice it is hard to fault evil creatures for their evil. Sure a devil is attempting to trick you into committing some horrible sin to damn you to his domain, but this is his nature. You can no more fault him for doing this than you can a lion for eating you when it is hungry. The fact that the devil will torture you for the rest of eternity is less damning for it that a human torturing you for a single minute. The devil never had the option not to, it could never look and say "maybe its wrong to torture people." It does it because its very essence is to be evil. But the person didn't have to torture you, they either rationalized it or did it for their own perverse pleasure. And this makes it so much worse. The vilest deprecations of hell are nothing compared to what people can do to other people. Devils never got to make the decision while humans always do.
This is the flaw with the alignment system. It proposes that Good and Evil and Order and Chaos are fundamental cosmic forces and then treats them as passing human philosophical ideas. The pure forms of any are alien and madness to the human mind which mixes diluted forms of all and attempts to get by best it can. There is no striving for alignments in D&D, no real struggle to keep ones alignment, no ambiguity about one of the most ambiguous and subjective of all human constructs. The Paladin should not be about smiting evil but about how any human can go about attempting to advance goodness and order in a universe of uncaring deities, malicious devils and greedy dragons. The party led by the Paladin shouldn't look at some black dragon extorting tribute from a village as an opportunity for loot and XP, but as an opportunity to right a wrong in the world. Perhaps a show of force can convince the dragon that he is not as invincible as he believes and a system can be worked out by which the people pay a tax to the dragon and the dragon provides protection to the village. This advances the cause of the Paladin far more than simply killing the dragon and stealing his ill-gotten gains. It provides an orderly system by which the villagers get a very powerful defender and the dragon gets his lucre. And for doing this the players should be rewarded accordingly. But this will never happen because there is only the barest passing reward for RPing an alignment while the penalties for not are great. So you kick the dragons ass and call it a day.
If alignment is to be a mechanical system it needs to actually be one. There should be penalties and rewards for utilizing ones alignment, not some goofy auras and occasional need for random atonement spells.