Faeries are effectively living lies that are constantly trying to suck up the attention of humanity. Vanitas vanitatum! This is bad in the Divine's view, as it distracts humanity from what it should really focus on.
It's really bad when such attention-craving actively hurts humanity. For example, a faerie monster terrorizing villagers, or faerie ergot driving people mad.
It's really really bad when such attention-craving not only distracts from good behaviour, but actually encourages sin too. For example, a faerie god demanding worship, or faerie temptress seducing a man away from his wife. Or a brownie encouraging laziness!
But whether it's just bad, really bad, or really really bad, it's fundamentally almost always bad at a primal level, in the way that a lie is fundamentally bad even when its purpose is good. There may be rare exceptions, and I'd expect those to be immune to the Smite Evil power, or the negative effect of Divine Auras (which also affect harshly all faeries, with only a handful of specific exceptions). For example, a faerie that derives vitality from stories of moral redemption - nudging sinners to realize that what they've been doing is wrong, repent, and embark on a journey of penance and reparation - may be on the good side of the Divine. Just maybe.