which villian type is worse?

[Backward Galaxy]

There is such a thing as a fully functional insane person. Many mental disorders allows for the people to fully function in society and for them to understand the rules of society. they just have those urges to do bad things at times.... which is sometimes controllable with medicine.
Or they're simply wired to have a lack of empathy, etc.

I feel like a lot of your explanation would just be "why" they fit into category 2.

Villains who I feel falls into Category 1:
Doctor Doom.
Poison Ivy
Magneto
Ra's Al-Ghul
V from V for Vendetta. (although he seems to be more of an anti-hero or even anti-villian)
Sinestro.
Maxwell Lord
Equinox (From one of the batman cartoon series. He wanted the universe to be a better place... by destroying and resetting the entire universe.)
Mr. Freeze
Darkseid (this one is kind of arguable, but he got his reasons for wanting to rule the entire universe).
Brainiac

Category two:
Black Adam
Deathstroke
Two-face
Professor Zoom
Catwoman
Riddler
Captain Cold
Bane
Black Manta
Penguin

I mean, most people are the hero of their own story and fiction writers take note of that when creating multi-dimensional characters. We could probably find a reason to put 95% of all villains with a backstory into Category 1 under these parameters.

Penguin is just a businessman in his own mind. So is Deathstroke.

Catwoman and Mr. Freeze aren't altogether different. Catwoman steals for herself. Freeze steals and kills to cure his wife, which is also selfish from the perspective of his victims.

How would Two-Face fall into category 2, but Joker would be in a 3rd category? Isn't Harvey's affliction legitimate mental illness? What about Riddler? There was a recent storyline in the comics where Riddler woke up from a coma cured of his insanity and began operating as a good guy.

Bane has fought alongside Batman in the past to take down Venom drug dealers and destroy Ra's Al-Ghul's lazarus pits.

How would we classify the Punisher under these parameters, who we like to think of as an anti-hero?

In one origin story, Black Manta is kidnapped, forced into servitude on a boat, and sexually abused. He hated the ocean because of this experience and, seeing Aquaman as its representative, lashed out at him. Is he category 2? Is he category 1? Is he a third category?

I think it's also best if we not compare bad guys with different power sets. For example, it's easy to find Doctor Doom more threatening than Two-Face because Doctor Doom is about a thousand times more dangerous. I think if we're going to separate this into the aforementioned two categories, Hal's examples feel right.

Lex Luthor feels he does what he does for the greater good. He believes in mankind. He believes if mankind is to prosper it will be done based on their own merits and their own ability to advance and evolve. Superman didn't have to earn his power, didn't have to struggle for it, and for those reasons can't be trusted with it. Furthermore, as an example to live up to, Superman is unrealistic for humans. But Lex Luthor's own accomplishments do serve as an example to which we all can aspire. Lex Luthor's fight, his rivalry, with Superman is for the good of all humanity. It's a war that a man must win.

Joker, on the other hand, sees society as a farce. Its rules, its laws, are just the machinations of people trying desperately to control the chaos instead of embracing it. He delights in breaking said rules and in showing others how chaotic the world can really be. He does evil for evil's sake because it amuses him.

One guy does bad things for the good of all mankind. One guy does bad things because he finds it hysterical.

[Shelby Kent]

The top experts on ISIS would disagree with you, Shelby. A lot of the ISIS members seem to revel in people's negative reactions towards them, and they seem to want to western world to become prejudiced towards middle-eastern people and create more wars. This is due to the fact that it leaves a lot of middle-eastern people vulnerable and hurt, which makes them ripe for recruiting.

This is very similar to how the KKK and neo-nazis recruits people. In the 80's they would go around defacing schools at night with racist expletives, but set it up to seem like somebody from the school had done it. This would cause the Latinos and blacks to wonder which white guy at the school had done it, and the non-white school population would then gang up on the white population, which made the white students angry and bitter because they knew they hadn't done it.
The Neo-nazis and the KKK then swoop in, acting very sympathetic towards the white students... and pretty much planting suggestions in the white students' minds that the blacks, etc were all to blame for their misery. Boom, instant recruit.

The ISIS acts similar to the KKK and neo-nazis, because they want to be attacked, etc. But they deliberately place their bases in highly populated areas full of innocent civilians.... knowing that the innocent civilians would blame the western world for attacking them when they had done no wrong.

That isn't to say that those ideological organizations doesn't have their share of religious fanatics.... they most likely do. But this kind of behavior makes them seem like they're category two instead of one. That is, they seem to revel in being seen as the bad guy. for some ISIS members, this might be just a prosecution complex.

It's probably a mixture of both. I mean, at the end of the day, do ISIS members and KKK/neo-Nazis think THEY are bad wrong people doing bad wrong things just b/c they want to? Or do they think their way of seeing the world is the right & best way, that they know what is best for everyone and they are just employing a certain means (doing whatever it takes to scare people, hurt people, anger people, make people feel vulnerable) to recruit people for their endpoint, their (so they would believe) righteous cause? In other words, I think generally neither of these groups' sole purpose in doing what they do is for the end-point of doing "bad." Regarding some of it: they probably don't even consider what they do "wrong" -- like executing "infidels", such as foreign journalists. On the other hand, terrorizing their own people in order to recruit them --that they may see as kind of wrong (or maybe that's not even wrong, b/c they believe it is a necessary means to an end...), but believe it is in service of a greater good: recruiting the people to a righteous cause, so that they will have sufficient numbers and converts to defeat all their enemies, take control of their countries (maybe even the world?) and run them in the "best" way (ie "their" way) so that in the end they are doing "their" people (their recruits) a big favor by deciding what is good for them and then giving them that kind of world.

I guess one thing I am saying is that villains who do things for the greater good ARE employing "bad" actions (wrong) as a means to get to the greater good, or else we wouldn't consider them villains, right? Or are you making the distinction that it is the end-point only that determines the villainy in #1, and not also the means? For instance: the greater good end-point is something evil, but it was achieved in a morally acceptable (according to our values) way? I'm trying to think of a good example for that off the top of my head to better illustrate what I'm saying, but can't at this moment, sorry. (And is it even possible to call a means to an evil end "moral" -- or doesn't the fact that the means was used to achieve evil automatically make the means evil as well?)

[Aurora Moon]

Hmm, some very good points.

Category one tends to have a mix of both Anti-villains and Villains.

For example, Lex Luthor himself could be considered an Anti-villain. From the TV tropes page on Anti-villains:

The Anti-Villain is the opposite of an Anti-Hero—a villain with heroic goals, personality traits, and/or virtues. Their desired ends are mostly good, but their means of getting there are evil. Alternatively, their desired ends are evil, but far more ethical or moral than most villains and they thus use fairly benign means to achieve it, and can be heroic on occasion. They could also be someone or something whose desired ends or means are not necessarily "evil" at all, but their actions simply conflict with that of whoever seems to be the protagonist.
They often reach a kind of critical mass that makes them more good than normal villains but not quite heroes, blurring the line between hero and villain the same way an Anti-Hero does, but by coming from the opposite direction. Also, they seldom perform a full Heel–Face Turn, or if they do, they continue to struggle with their villainous impulses.
Anti-Villain is an attempt to humanize, to lighten up, a villain as opposed to an Anti-Hero, which has a tendency to darken the hero. Side by side, it can become very hard to tell them apart. The only reason some would even be considered evil at all is because they're the Designated Villain. Despite this humanizing characterization, they are rarely less dangerous. For instance, heroes wouldn't know what to expect if their enemy shows caring and then attacks their reputation, without giving them an excuse to rationalize killing them. Most of them are probably well aware that what they're doing is "evil", unlike the blinded Knight Templar, but strive to maintain a facade of good PR. They'll see it as a viable means to a (possibly) good end. It may also be possible to turn a normal villain into an Anti-Villain over time by detailing their Start of Darkness, giving them a Cynicism Catalyst, a Morality Pet, kind episodes, or otherwise retconning them into submission. A Freudian Excuse may explain their actions, but almost never changes them into an Anti-Villain if there is nothing good about their present motivations.

To me, that pretty much sums up Lex Luthor as he is in present continuity, in both Smallville and the movies.

Of course to me, the means to get to a good ending can be considered evil if you have to commit terrible acts to get there. The same thing goes for a evil bad ending even if the actions you took to get there were legal and honorable.

To me, it's more about how your actions affects everyone around you rather than the goals you had. For instance, if you wanted to cure both Cancer and AIDs.... I would say that wouldn't be so bad. But, if you decided that you had to infect everyone in the entire world with AIDs and Cancers in order to find a cure, then you just became a evil person in my eyes.
It's about how many victims you affected over the course of this story rather than your goals as a villain. If that makes sense.

[Bally]

A valid question and a difficult one to answer. Awareness of the impact of one's own actions plays a large part in deciding how villainous a person is.

[HalJordan4184]

One problem I'm having with this, is that it seems people are more focused on a, "How many people did person A directly or indirectly kill, maim, hurt, etc?" To me, while a casualty count is "important" with the question, it's pretty far down on my list. Most of the truly evil, crazy types, won't have as high of a casualty count. They are out there, blatantly evil, and it becomes much easier to make the case against them and take them down.

With a villain like Lex Luthor, what makes him "less" evil in my mind, is the fact a lot of people would agree with his reasoning and actions, and can understand him. By no means is he right, but there are people that will think he is, and believe whole heartedly in his cause. What makes him the less "evil" of the two, to me, is that not everyone actually agrees he's wrong.