Well, as a tabletop RPG gamer, I think it’s fine as long as you consider your actions in the game and act in a way that makes some kind of sense, morally. You don’t have to follow your own ideas perfectly (particularly on the law/chaos axis), but you shouldn’t be doing stuff that’s obviously and inexcusably evil. Not often, anyway, and certainly not as a goal.
I would be totally fine playing as a paladin who kills demons. In fact, my paladin has already had some scrapes with them. I don’t see any issue with that.
I wouldn’t be OK playing as an evil character who made a pact with a demon. Or an evil character who did anything else really evil, without remorse (unless of course I were the DM, and I had to play evil characters to give the good characters a story to play through. Playing a reformed evildoer would be… Interesting, so I won’t count that out, either.). Just because a game mechanic exists for it does not mean it is a good thing to play. Roleplaying is a powerful tool, which is why I prefer to limit my roleplaying to heroic characters.
As far as magic and multiple gods, I just take it as part of the fantasy setting. It’s not real. The gods are just characters that represent certain opinions on morality, instead of just the good/evil law/chaos axes. Like, in Pathfinder (which is what I play), my paladin serves Iomedae, a goddess who values justice for evildoers. Meanwhile, we have a cleric who serves Sarenrae, a goddess who values forgiveness. The conflict between justice and forgiveness can make the plot more interesting, even between two good characters.
Fantasy magic just doesn’t bother me anymore. I mean, divine magic comes from the gods, and arcane magic is naturally occurring. It’s just a thing that exists, and it’s as morally neutral as the impossible powers of superheroes. In that world, it’s just normal. So I guess I’m saying that I think your characters should act in accordance with actual moral law, but with the understanding that the setting is different, ie. magic is not from demons, it’s just an energy that anybody can tap into.