The Short Version:
An evil PC is killing town children during long rests. The town authorities have decided that they need him (and the rest of the group) to handle a big problem anyway. Several other PCs don't trust him, don't want to work with him, and have threatened violence against him if he doesn't stop killing innocents. The evil PC has given every indication that he will not stop, and the DM is committed to everyone playing whatever character they want without antagonism between group members. Several players are unhappy because it seems that their role-playing is being sidelined for the benefit of the evil PC's player. What options are there for the players (other than leaving the group) or for the DM (other than PvP)?
The Long Version:
I've recently joined a new 5th Edition D&D group at a local game store. It is a fairly large group (between 5 and 10 players), a majority of the players are completely new to the hobby, and very few people in the group know each other outside the game. Additionally, the DM is an old-school player, but this is the first time he is DM-ing.
The group has about equal parts goofy meme characters and "normal" characters (both types using standard rule-book builds); however, there is also one player who is playing an edgy, evil home-brew character. That player is completely new to the game, but he is older (in his forties) and is real-life friends with the DM since before the game started.
This edgy, evil character has not done anything to harm any party members, but he has done some other gruesome things. Specifically, he has graphically tortured enemy combatants for information, and recently, he was outed to the group by the local town authorities as abducting, killing, and disposing of children in the town at night. [His home-brew character is not an elf but has the 4-hour trance feature from elves and is presumably using the other 4 hours of long rests to do this sort of stuff.]
Once the killings came out, several characters in the group had a problem with it. We had an in-universe meeting with the town authorities and the party members to discuss it, and we were also informed of some big, bad stuff threatening the town that we would need to work together to defeat. During the meeting, we were also told that this character was doing these things because his god requires a "heinous act" and blood sacrifice every fortnight.
This meeting was ultimately not enough (as I will explain in a moment), and immediately preceding the next session, the DM told us (in polite, indirect language) that the evil character is here to stay and that he's tired of this conflict.
At least three characters in the group feel that the big, bad evil outside of town is at best a band-aid solution. The edgy, evil character has been unapologetic about his actions and has given no indication that he will stop killing innocents. In fact, he implied that sacrificing enemies like goblins would not be "heinous" enough. From a role-playing perspective, several characters in the group feel that they cannot trust the evil character, and on top of that, those PCs have already threatened violence against him in-universe if he doesn't stop.
However, the DM has forbidden PvP and has not allowed antagonistic actions within the party to surveil the evil character. Moreover, the NPCs who (one might think) should really care about the killing of children in their town have been borderline dismissive of it.
So here's the issue: Several of the players at the table feel like their hands are tied and that they cannot actually role-play their characters. However, except for this one issue, they all really like the DM and his game. So it seems as if they are being put into a position to either not role-play or leave the game entirely. It would be one thing if the evil character's player and the DM seemed willing to play ball, but it sort of seems like the latitude for role-playing is really one-sided. If the evil character brutally tortures and kills NPCs, the only people who could ever suffer any consequences for their role-playing are the other PCs who try to stop him. The evil character doesn't even seem to bear the burden of his own actions from other NPCs.
What solutions are there for players who don't want to leave the group but still want to role-play? Are there options for the DM - who wants everyone to be able to play the character they want to play without intra-party conflict?