Anti-Grinding: One man's innovative is another man's Scrappy Mechanic. The Karma malus for defeating a weaker enemy is more of a punishment for using fewer, stronger units than encouragement to using many weaker units. It also begs the question of just what exactly is so evil about fielding a superior force.
Fridge Brilliance: Why can't you advance from Wizard to Mage if your alignment is too low? Because wizardry is demonic magic, and Evil Is Not a Toy. If you hit rock bottom on the Alignment scale before you're ready to become a Mage, you can't advance and negotiate a better Deal with the Devil, because the demons control you, not the other way around.
Antalia is called the "Land of Imprisonment" for two reasons. The obvious one is that Yushis is imprisoned there. However, it also has a Chaos Gate to Antanjyl, where Galf is imprisoned.
Game-Breaker: Princess+Lich. The Princess gets two White hit-all attacks, the Lich gets four hit-all spells that can be anything except White. Add a cleric class for a medic and a High Sky monster to carry the unit, and watch it tear anything and everything that opposes it to shreds. Just remember to watch your Karma Meter.
Alternatively, you can ditch the cleric for another lich/sorcerer/muse/doll master and put some undead in front of the unit to tank instead of the high flying monster. Undead are completely invulnerable to anything that isn't white magic or healing (although that kills them incredibly quickly), so the unit has a lot of survivability even without a healer. You do lose some maneuverability, though, but your increased damage output would be worth it if there was anything that could survive the Princess+Lich combination in the first place.
Alternatively, since most bosses towards the later half of the game are low alignment and thus more vulnerable to white magic, Princess + 2 Seraphim with your choice of unit to do the tanking (Platinium Dragon anyone?) means a veritable hailstorm of white magic hit-all attacks.
Also Rashidi from the same game. If the player's Chaos Frame is low enough, they receive a special ending which implies the entire game was just one massive ploy on his part so he could be resurrected.
Tear Jerker: Depending on how the story plays out, Yushis vs Mizal, as well as Rauny vs Hikash.
Several sources said that battles directly affected reputation, in the same way that they affected alignment and charisma. This wasn't true. Also, amazons don't hate male leaders, at least not in any way that affects gameplay.
Boss battles directly affect reputation, as the winning unit liberates the headquarters the boss was defending; in addition, some bosses will hurt your reputation if you kill them, and if you haven't done the proper storyline events to save them, you'll take the reputation hit regardless. This may be the source of some of the confusion.
Certain game mechanics are improperly represented by most guides, which are then copied by others, allowing rumours to form. For instance, Amazons do not do better in units that are all female (although characters do get stat bonuses for having compatible leaders), and attacking weaker/stronger units does not affect global "karma", just individual unit ratings.
Sadly, almost all of those rumors arose from the official strategy guide and Nintendo Power (often NP copying the guide), which led to them being copied by the earliest internet walkthroughs, which led to them being "common knowledge," despite being completely false. You can, in fact, have a level 25 unit running around pwning lvl 10 units with no hit to your reputation whatsoever, though they will have 0 ali and 0 cha. Probably the first game is especially vulnerable to this due to its rather vague mechanics and the fact that the reputation meter, despite being a 100-point scale, is represented by a fairly small visual with no number, so playing the game the standard way may make it hard to tell just how much impact anything had on it.