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I've been DM-ing an Iron Kingdoms game, and while we've had a good time, one of my players is a fervent Cryx player who wants to play a Cryxian spy. Not a reformed cryx, not a traitor, but an honestly vile Cryxian spy.
What do I do with that? As far as I know, Cryx are basically kitten-eating irredeemably evil guys, and worse off she wants to play a warcaster, which basically guarantees she's somewhat important. Can anyone think of a... less bad thing to do with a Cryxian spy in the party?
So far, the best thing I was able to think up was to put the party in the arse end of Khador and have the Legion be the 'bad guys,' but what other forces could I throw against a party that doesn't involve conflicts of interest or a priest casting Detect Evil on the party? (Or the IK equivalent that's always on, that's good too).

Cryx infighting is very common. The spy could be working for the cryxian head of intelligence, Lich lord Malathrax, depicted in the cryx book as trying to ruin Asphixious' plans and keeping all kinds of secrets from his peers. Asphixyous himself also keeps his own secrets and has been known to do more for his own self interest than that of Toruk.

As a warcaster the character will inevitably be courted by mercenary groups and national military training programs. Maybe the spy's mission could be one of infiltration and intel gathering? The spy's challenge could be to persuade peers and superiors away from secret holdings or to find ways to sneak out for weekly reports. For that matter, a living cryixian might find a challenge in keeping a stone heart to all the friendly faces and warm beds he suddenly finds now that he is away from the Scharde isles.

There is absolutely nothing wrong with putting restrictions on character creation as a GM. You know what your adventure is going to be and what things will and will not work in it. But you need to be clear and open about the fact from the get go.

Otherwise, character creation should be a cooperative effort between the DM and the player. talk to the person and see what they really want. See what you can work with and what they are willing to give. I hate saying "no" to cool ideas, but sometimes certain things just won't work in your campaign. The best thing to do is just explain this.

And maybe your next campaign everyone can play the "badguys".