LucasArts has answered the following question about Knights of the Old Republic:

How will gameplay be affected by the character's light or dark side alignment in Star Wars: Knights of the Old Republic?

As your character moves towards the light or the dark side it will have an affect on certain Force powers that are more "good" or "evil". The Force powers in the game are weighted towards the light or dark side.

For example, Force Heal is obviously a more light side power. If your character is leaning towards the dark side and chooses this power, it won't be as effective as it would be if the character were leaning towards the light side.

Other changes in your character will also be apparent as you move towards the dark side. The characters skin texture and portrait will become "corrupted" with evil, and his/her overall look on the character record sheet will become more aggressive. The changes are pretty dramatic, and as you go through the game you can slowly see this change take place - that is, if you choose to go to the dark side.

Finally, other characters and party member will react to your character in different ways, and you may get dialog choices and quests that would otherwise be unavailable. This is true for dark and light side. Be sure to visit the Knights of the Old Republic official site for more information about this new game.