Wow, lots of answers.

"There are plenty of games and movies where the bad guy or villain is the "hero." It's called an anti-hero (well sort of..anti-heroes are kind of a different thing than a villain)."

I agree... I've played games like that. GTA, as error014 mentioned. You're definitely the bad guy... but you still don't feel like you're "bad", I believe. Or, when you win, YOU win, not the bad side wins. There's nothing wrong with you winning.
Then again, if you'd really be a "bad" guy, say like an SS member in WW2, killing innocent people, I would refuse to play the game. Killing people in counterstrike is one thing, killing innocent people in a War that actually happened sure wouldn't make me feel good, and I'd not like to see something like that in a game.

Error014, i liked what you said about stories. You're totally right. Stories aren't as good as they should be.
Maybe that's the reason it's so hard to make games with the "bad" guys winning.
You talked about a game that in which the player does everything right and still "looses". I've played a game like that, although I don't remember what it was. There was someone attacking you, and you kept on getting pushed back. But in the end, I still won, so it doesn't count... ^^

I guess all the games where you're "bad" either don't give you a story to it or don't give a choice of action, or else they make the being "bad" right. Like Prince Arthus or whatever his name is, in Warcraft 3. He gets turned bad while trying to save the world from evil.

Micha