He lived in the only way available to him (and an interloper human decided to question 800 thousand years of evolution which the Morlock clearly thought presumptuous) and explained very lucidly to Alexander why he could not change time. He could have simply killed him but instead offered to let him leave.
I think you've hit the nail on the head. The Uber-Morlock is probably best characterised as 'dispassionate' about what he and his people have done to the Morlocks and the Eloi. He's the undisputed leader of his people and the state of affairs simply is what it is and he ain't in a mood to take criticism from an old-timey human with his old-timey morality.
Is he evil by Western, 21st century standards? Yup.
Is he evil by the standards of the time? Not in his opinion or the opinion of his peers.
OVERLORD: I'm afraid your indignation is lost here. I have no more "human" response to the Eloi then you would have to a carrot. It's just how we live now.
ALEXANDER: But this is barbaric! Have you completely lost all sense of --
OVERLORD: (stops, calm) And who are you, Alexander? Who are you to question thousands of years of evolution? This is the world now. I am fact.
As to the subject of Alexander himself, the Uber-Morlock shows no specific animosity towards him and his futile attempts to stir the Eloi into rebellion. He just basically wants him gone by the most expeditious route possible, finding the presence of this interloper something between a vague amusement and a mild annoyance (and more so the latter after he starts mouthing off about ethics and morality). He does sorta threaten him in the original script but it's quite gentle given the circumstances and more 'it's all the same to me'.
OVERLORD: Go back to where you came from. Or die here.
Essentially, he was.
Any definition of good and evil must ultimately be somewhat subjective.
That said, what we can say is that the Morlock Overlord was evil by most contemporary standards, that his actions would likely have been viewed as evil by others in the setting, and that he was probably intended as evil by the writers.
- Evil by contemporary standards. As elaborated below, he is behind a system of mind control, cannibalism, and killing of sapient beings, and likely behind at least one genocide. He doesn't have too many regrets about it, and the system is likely largely unnecessary.
Evil by future standards. He clearly doesn't think of himself as evil. But he's the main mastermind behind events and systems that many in the future society loathe:
As the leader of the Morlocks, he indirectly killed Vox's people. It's safe to say Vox would see him as evil.
VOX: Who doesn't know the Morlocks?
ALEXANDER: Do you know where they live?
VOX: Oh yes... They found our knowledge useful for a time. They used us much as your people did. Then they decided they had learned enough so they tore us up for spare parts.
Vox's fellows probably would too, but, you know, the Overlord killed them all.
We know that Kalan was seriously upset about his mother being taken:
KALEN: They took my mother!
And that his mother seriously wanted her child out of that time:
MARA: (urgently) Alexander, take my son away. Take him back to your time. Will you do that?
Kalen's friend didn't seem too happy with the situation either:
KALEN: I had a friend who came here once. Sort of a dare.
ALEXANDER: What happened?
KALEN: He came back screaming... He never talked about it after that. I don't think he even got this far.
Since the Overlord created the system of Morlocks killing Eloi, if these opinions are typical, I think it's fair to say they'd view him as evil. While the Morlock Overlord says that he's "breeding them [the Eloi] for submission", I think it's clear that he's got a ways to go. Nor is it obvious that "submission" is quite the same as "wanting to be eaten" or "not thinking that the Morlock Overlord is evil."
What about the Morlocks? Surely they'd not see the Morlock Overlord as evil? Well, the Morlock Overlord and the Uber-Morlocks control the Morlocks:
ALEXANDER: How do you control the Morlocks?
OVERLORD: We make them see what we wish.
OVERLORD: As our bodies atrophied our minds... compensated.
That mind control is necessary strongly suggests that the Morlocks are not happy campers. It's quite possible (likely?) that they'd view the Morlock Overlord as evil, if their perceptions were not being altered.
We can't even be sure that the Uber-Morlocks wouldn't see him as evil, considering that he unwillingly created them, it's implied, from Eloi.
OVERLORD: We have lost the capacity to reproduce. But the species must continue.
ALEXANDER: So you take their best...
Although the Uber-Morlock does say that she won't remember who she was before.
Probably written as evil. Besides all the characteristics that a modern person would likely think of as evil, the Morlock Overlord is a eugenicist who modifies species to better suit his needs. He has a social Darwinist philosophy, and seemingly considers himself to be part of a superior race. His species (is it a species?) is called the Uber-Morlocks, Uber being a word that had a very heavy Nazi association in English speaking countries, until the car company. He also looks very Aryan:
This and other facts suggest that the writers were going for an obvious Nazi analogy. Since Nazis are one of the most common and unambiguous forms of shorthand for evil in European and American films, their intent is fairly straightforward.
What about the two arguments presented in the question?
The Morlock Overlord explains quite clearly why he's letting Alexander go back. It doesn't have anything to do with mercy, but with what he just explained. You can't change history:
OVERLORD: Go back to where you came from. Or die here. ALEXANDER: Why would you let me go back?
OVERLORD: Because the past is immutable. Frozen. Dead... And you are the past.
As for "800 thousand years of evolution", there are two issues with that argument. First, evolution doesn't necessarily lead in the direction of increasing morality, as defined by a moral system that doesn't consider evolution to be intrinsically moral. Second, and less subjective, the situation with the Morlocks and the Eloi is explicitly not the result of evolution (contrary to the original book) but of intentional manipulation by the uber-Morlocks:
ALEXANDER: You came underground when the world was ending above. And you evolved. Some into the Morlocks and others --
OVERLORD: No, we created the Morlocks.