It's times like this that I sort of wish Yahtzee was required to read all of the responses he gets because... well, I'm about to sort of knock him around a bit more than I have before, and I really think he needs it:
Yahtzee, even though you will never read this you DO realize that this game is one where you have the actual abillity to be evil right? You know sort of like your proclaimed plans to want to play as "Ming The Merciless" in Fable always get ruined by the central game design not allowing you to be evil enough. Cases where being evil is more like being a puppy kicking jerk than anything truely villanous...
In Skyrim this is a game where one quest involves you luring a guy into a dungeon so you can eat him in worship of a demon in order to obtain a mystical ring. The most powerful weapon in the game is a rip off of "Stormbringer" where you are not encouraged to kill random people, but to murder people who trust you because you did quests for them in order to power it up.
Let's say your playing a pitch-black evil run through, and honestly you have no real reason to criticize because you've made it abundantly clear you do this, and are the one guy I would think I don't have to explain the appeal of dark play, horror movies, and similar things to. Your a cannibal seriel killer, who gets their rocks off by earning people's trust so you can lure them back to your place and feed them to your soul drinking sword. Your hobbies include theft, and depopulating towns, and only want Alduin dead because you can't stand someone else competing with you for the title of most evil bastard on the mortal plane. In this case why should children be excluded from your rampages?
Let's also be blunt about something, not ONE parent, babysitter, or person who has worked with children has not occasionally wanted to just haul off a pulp some little sh@t against a wall. Kids are annoying, noisy, and frustrating. We don't do this because it would be wrong, and we're not self-serving sociopaths. However it can occasionally be somewhat relaxing to give in to an impulse like that harmlessly.
This is to say nothing about the existance of child-soldiers throughout the third world, or the age at which kids in ancient times frequently entered the battle field.
A big part of why this issue recurs is because game designers don't try and make their kids likable, but as annoying as possible. About the 47th time I had child gueriellas make me play gofer while calling me "Mungo" in Fallout 3 I was ready to just splatter the whole community of Little Lamplight, and really even as a good guy I would put it into the context of say dealing with a group of gun toting African child-fodder.
To seriously ask this question raises questions about "why would anyone want to play as the bad guy?", "why do people enjoy horror movies?", why had Kane Hodder gone to conventions or things like "Spooky World" (closed now, theme park in Massachusetts) and signed plastic replica hockey masks (he's perhaps the most famous actor to portray Jason Vorhees). People ask these questions frequently, and the answers vary... but the end result is that it's perfectly normal behavior. For there to be a problem with things like this you need to be dealing with people who cannot seperate fantasy from reality at all or are both sociopathic and murderously sadistic... both of which are unthinkably rare despite what Hollywood might lead you to believe from the movies.
When it comes to having sex with children, that's not my cup of tea, especially given that I was raped (by an older kid) when I was like six. I tend to have an issue with it, but there are contexts where I think it might be appropriate. A game attempting to say promote ancient greece, rome, or asia that insisted on a modern age of consent would be odd, given the huge focus on child brides and such which have had a lasting culture influance on those cultures into today (I've read a bit on why there is such a pedo-phille focus in Japan and why extreme youth is so heavily associated with beauty, I won't break it down, but let's just say it's something that goes beyond modern pervs, not that it in any way makes it acceptable).
It's sort of like slavery, I have no desire to take or keep slaves, but I see no real reason why if I'm supposed to be reveling in barbarian, egyptian, roman culture or whatever I have to be the only guy running around with the morality of a new millenium ulta-liberal.
If we as gamers want to get away from accusations about how video games cause violence and lead to violent behavior, we also need to get over things like how say someone who has no problem with killing kids or playing evil in a video game has something wrong with them that reflects on real life. The entire point of gaming is to get away from reality and do things you never would in reality.
Long, but hopefully this has been read. The bottom line is I think when it comes to an "M" rated game there should be little or no moral limitations imposed, especially if your dealing with a sandbox where the point is to dictate your own path and morality.
At the same time though, I do think there needs to be a bit more of a reaction to player behavior in these games. For example if you kill one town, I would think especially with mages and oracles and everything else that other towns might hear about it and become increasingly ready for you. If your going around banging (sexually) everyone in a game where it's permitted, likewise I think you'd develop a reputation, and might even have people going after you for your antics as much or more than you see from stealing stuff.