Step 9: Villains in the shadows
The Lord of the Rings was arguably the one novel that defined modern fantasy literature. The main villain in that story is named Sauron, and he proved that a bad guy doesn't even need to appear once in the story for him to be totally awesome and scary. In the movie, Sauron makes a short appearance, but we never see his face. Most of the time after that, he's just pictured as a giant eye wreathed in flame. He doesn't need to actually do or say anything himself because most of what he says is simply reported by others. He is much scarier in his silence than he would be in the flesh.
In your roleplaying circles, Arthas, or any other awesome villain you might choose, would also be much scarier if you apply the same technique: let their villainy be felt based on what happens to you. This might be the one way to get away with choosing a villain from somewhere in the lore without also looking like a Mary Sue, as long as his actions and intentions for you and your guild are peripheral to the overall lore storyline the developers of the game are working on. It's important to remember that your goal is not to thrust yourselves to the center of the Warcraft universe and claim to have brought down the villain once and for all, rather, you want some encounter with him that strengthens your group's antagonistic relationship with him.
Step 9a: A shadow villain example
So for example, let's say you decide that Arthas is going to be your enemy, but he's never going to appear in person, only his minions are going to do things to you, and then only in ways you can either report second hand, or actually make happen in the game. Suppose that you are killing ghouls one day, just questing by yourself, and you come across a weapon that looks particularly scary. You may decide that this is one of many cursed weapons Arthas has scattered about the battlefield in order to corrupt otherwise good heroes the same way that Frostmourne itself helped to corrupt him. You tell your friends about your new find and how cool it is, and then slowly over time, show them how your character is growing more and more driven, losing his sense of morality in achieving his goals.
Now, at this stage you might be thinking, "Bah! That's just another possession story!" and you'd be partially right. But the purpose here is not to draw out your character's possession and start channeling the voice of the Lich King and all that. We're just creating a story hook to show the effect of the Lich King on our lives and enlist the support of your friends to get involved in the story, trying to protect your character. The actual "possession" part is just about finished already.
So now your character reports his strong compulsion to meet with certain "wise teachers" who have promised him power beyond recognition if he will only submit to a certain ritual at a certain place your friends know to be an evil location. From there, you either find a place where you can sit there surrounded by enemy NPCs, supposedly waiting to undergo this dark ritual, or you get one or more of your friends (not the ones who will not be saving you) to make some low-level warlock alts (or whatever sort of disposable villains you like) and then summon them to the site where you want them to start the ritual. If you've chosen the NPC route, then your friends just come along, beat up the enemies, and take you away from there. Make sure they roleplay taking the weapon away too. If you chose the low-level alt route, then you can say there is some sort of protective shield around the ceremony (I know it sounds corny but these things are everywhere in fantasy fiction, so I think it's okay), and force your friends to talk or otherwise roleplay you to safety somehow. Make sure there is a way and that it is not ridiculously obscure or hard to figure out. Once it's finished, and your cursed weapon is taken away, then congratulate yourself on an excellent adventure.
That's it, you ask? Yep! Not every adventure needs to last for months and months. Sometimes it's okay to let it last a couple weeks. Once you're done with one adventure, you can think of another – Perhaps that cursed weapon keeps on corrupting the thoughts of anyone nearby, and it can only be destroyed with a special ritual that is almost as dangerous as keeping the darn thing around.
Another thing to remember is that your freedom to report the evil deeds of your favorite villain increases a great deal if you use a "guild hall" type of technique, where your roleplaying group shares some sort of chat channel as its own roleplaying environment, apart from whatever else you and your character are doing in the game. This would allow you to describe the actions of your unseen villain in more detail: you could describe banshees breaking into the guild hall and trying to shatter your minds with their scream, or describe the evil tell-tale mannerisms people have while under the influence of the cursed weapon without actually having to get everyone into the same place as you. It's not necessary to have a "guild hall" channel, but it helps a lot.
And that's it for now! If you have more ideas and suggestions for how to play a good bad guy, be sure to write them down in the comments below, and let everyone behold the depth of your evil genius.