Ahh yes, The Problem of Evil.. this is a big one. Stephen Davis has an interesting article about it.
The problem is that:
God is all-good, all-knowing, all-powerful, yet evil exists. One has to be wrong. If he is all good, then he doesn't want evil to happen. If he is all knowing, he knows where and when the evil is gonna happen, and if he's all powerful he can stop it. If one of these were not true, God can escape the problem... but religion would not want one of these to be denied.
Basically, Davis says that moral evil can be explain due to the free will of humans (as stated earlier in this thread). Natural evil MIGHT be the cause of Lucifer. This at least solves the problem logically, though an 'emotional' problem still exists because it seems odd that such a good and powerful God would put us in a world with widespread evil.
Also, its not clear that evil is neccessary for good to be appreciated.
It's stated that God didn't want to create beings that only did good(moral automatons), because then they wouldn't really be people, they wouldn't really CHOOSE goodness, it woudl be fake..
Fine...
But WHY did God have to create people? Why did he have to create Lucifer? He DID know what was going to happen (he is all knowing and exists outside of time), so he KNEW Lucifer would rebel and become evil. Why did he have to create a world to begin with? Was it absolutely necessary? If it WAS necessary for him to create a world, wouldn't the fact of evil arising put him sort of in a catch22 'damned if you do, damned if you dont' position?