Consider: basic description of Chaos is placing the individual above the group.

Also consider: one basic description of Evil is debasing or killing others for fun or profit. The most obvious example of this is the Assassin class, with original AD&D rules saying that murder of other for profit is plainly Evil - but this can be extended to virtually any character class when they are acting in a chiefly mercenary way.

Now consider: many player characters are armed vagrants with few ties to larger society, mainly motivated by self-centered pursuit of personal power (experience points) and wealth (gold and magic items), their main method lethal violence in various forms. Many such characters could rightly be considered Chaotic Evil, if not for the facade that D&D is about "heroic adventurers" fighting forces of Evil.

Point being: moral greyness and even moral blackness are extremely lows bars to clear. The average player is often happy to go slaughter any number of imaginary foes if the imaginary rewards are high enough - because they already see "kill things for fun or profit" as what the game is about and what "heroic adventurers" are supposed to do. Just stop inventing excuses for them. The example with dwarven squatters, above, exemplifies this. If it was goblins or kobolds or orcs, it would just be another adventuring day - by switching the target of the usual raping & pillaging to something even mildly sympathetic, it highlights that this whole "heroic adventurer" business is already ethically suspect.