I'll go ahead and reiterate an earlier suggestion I made:

Have good aligned mobs (or possibly all mobs) re-wield gear they normally carry when it is given to them by a PC. (If it possible to wear that gear - i.e. a slot is empty).

Say I kill some evil dude wielding Diana's sword. I can't use it, but neither do I want him keeping it. Could destroy it, but that's sort of silly. Seems like the most logical thing to do (RP-wise) would be to return it to Diana. I can do that now, of course, but she just totes it around in her inventory from then on.