It's a repeated point of the heavens that the world is full of opposites; for example, the Forest Shadow and the Mother, and Chai Ka and Ya Zhen. Nearly everything in the game has an opposite, readily apparent or not; Sun Kin and Death's Hand, Dawn Star and Silk Fox, Mistress Vo and Jian the Iron Fist, Black Whilrwind and Henpecked Hou, Smiling Hawk and Master Radiant etc. But who doesn't have an opposite? You, and that's why you can tip the odds in either direction.
Actually, you do. Three of them in fact. Powered by some sort of outside evil even. Encountered when trying to come back from the dead in the Spirit Monk Temple. Nonetheless, you beat the crap out of the evil yous though.
Maybe, or maybe it is Master Li.
Sun Li says that the Spirit Monk's role is to oppose him before their final battle, which doesn't really leave who is the opposite of the Spirit Monk (or vice versa) as ambiguous. Although, Li says that their opposition is the Celestial Bureaucracy trying to restore balance, which could mean that initially the Spirit Monk didn't have an opposite but ended up with the Glorious Strategist.
Now that you mention it, who's the Water Dragon's opposite?
Probably the outside evil, since it seems to represent anti-life itself. Or maybe someone who brings life.
When doing the forest quest, at one point you get attacked by a fox spirit who turns you to stone, which you fortunately manage to break. This is Stone Immortal, and what alignment do you have to be to use Stone Immortal most efficiently? Open Palm, a clue that the fox spirits aren't the villains in the forest.
How did you lose the flaw Master Li trained into you in time for the final battle? Well, in order to get out of the afterlife, you had to fight three copies of yourself, each of which uses one aspect of your training (Hand-to-hand, Weapons, Magic). For a prodigy like you, seeing your own style from a different perspective was probably enough to let you analyze and eliminate any problems with it.
Even without the Mirror Matches, the flaw depended on the character not even knowing it really existed.
Spear Catches Leaf explains that hunters like himself have to balance between the Way of the Open Palm and the Way of the Closed Fist; killing animals for food and clothing is using discord to achieve harmony. Who are doing a more evil version of that? The Lotus Assassins, hunters of humans. Their job is (or should be) to hunt down political enemies of the Emperor's divinity and the Empire's peace and security, and thus restore order. Their purpose was more or less the same during their more honorable days as the Lotus Monks under Prince Sun Kin the Hand of Heaven. Death's Hand enforcers the Emperor's will through his brutish instructions and without free will, for he's forced to act as the mindless extension of Sun Hai and then Sun Li's will, eliminating anything they view as a disturbance in the Empire they envision. Harmony through discord.
In relation to the above, we gain a Freudian Trio covering the Way of the Open Palm and the Way of the Closed Fist. Of the three imperial Sun brothers, Sun Hai is the Id, Sun Li the Glorious Strategist is the Superego, and Sun Kin the Hand of Heaven is the Ego.
Sun Hai is very much an evil Closed Fist follower, for he cares much more about his own divine power he stole from the Water Dragon than the transgressions the Lotus Assassins commit by carrying out his orders and the natural disorder caused by the Water Dragon's death. He's also the quickest of the trio to lose his temper and let his pride get the better of him. Plus, he ordered his brother's family for death for no other reason but revenge.
Death's Hand/Sun Kin acted both before and after his enslavement as the enforcer of the Emperor's will, bringing through discord the harmony as Hai and then Li deem it, as stated above. Sun Kin's scale between the two Ways shows him to be neutral. He states after his liberation that if he'd known what misery his brothers' opposing yet equally insane plans would cause, he'd have fought to stop them both.
Sir Roderick Ponce Von Fottlebottom is a mishmash of various unrelated European cultures, and his appearance is highly anachronistic, combining the armour of a 16th-century Conquistador with a 19th-century monocle. In other words, he's the equivalent of poorly researched East Asian-inspired characters from other fantasy worlds.
That and he may also be (or is passing himself off as) a mercenary. A lot of them were Impoverished Patrician types who had the noble education, background, and posturing, but not the cash to finance the arrogance or lifestyle. So they had to go and hire themselves out to whoever would pay and wear/carry whatever they could plunder, looking like a Rummage Sale Reject
When Master Li first tells you the backstory of how you came into his care, we are led to believe that the Spirit Monk that carries the infant you out of the Dirge was Li. It was not until later in the game that it's revealed that he's just a random Spirit Monk, who is subsequently killed by Li shortly after he managed to escape. Why does that particular Spirit Monk somehow look exactly like Li in the flashbacks? Because you were first led to believe that Li is that Spirit Monk. The Spirit Monk you played as initially only knows the story from Li's fabricated story, so it's no wonder that they chose to project Li's face on that particular Spirit Monk - the person who took you out of Dirge and raised you as his own.
Henpecked Hou reveals that he and his wife tried to have children for several years without success. If you restore the natural order, the epilogue reveals that Hou and his wife have seven daughters at the same time a few years later. They were unable to have children before because no soul could be reborn as long as the Water Dragon wasn't allowed to guide spirits through the Great Wheel. And given how many souls were waiting to be reborn, having a septuplet makes sense.
With the Water Dragon out of commission, no souls of the dead were passing into the afterlife. There was also talk of reincarnation with the Great Wheel. Given that none of the recent dead could pass through, rest, and be reborn, it was also just as likely that fewer and fewer children would be born, and the living would soon be overrun. Eventually, everyone would have been a trapped spirit, slowly going mad from the torment of being trapped.
It can get better, but the problem is it's (Closed Fist) likely to get much worse first. It's not just the prospect of eventually dying and having an afterlife filled with nothing but torment and madness to look forward to; its HIGHLY likely that unless the Big Bad was defeated and more importantly, the "Hero" wasn't a Jerkass, it could mean the a justified A God Am I situation in the same theme as Hades or Lucifer.
More to the point, the Jade Empire belief system and pantheon may be unique to itself and beyond its borders; there are more people that are unaffected by the Jade Empire's troubles and are ripe for the conquering.
Empowered with even MORE souls, this could mean that the Celestial Bureaucracy could be facing an INVASION from a former mortal, as no Souls/Spirits means the various heavens would weaken while the Big Bad just gets stronger.
And just to make it even worse, if the Water Dragon's power could be stolen, why not other Gods'? Along with Powers and Portfolio.
The Water Dragon's powers were stolen because she had given some of her power to the Spirit Monks, as well as created a medallion with similar properties. As long as the other gods don't do that, they should be fine.
The end result of having the Big Bad end up being an all-powerful Zeus figure (a God that rules after beating the old God) that can remake all of creation, and thus, allow life, light and happiness to return (as long as proper grovelling and offerings are regularly supplied) will probably just be a mark of a new epoch. As to whether or not the ends justifies the means, well, who can know the mind of a God?