Wow, my name gets brought up in threads I have not even posted in yet...
The Hebrew word "Rah" can be translated in many different ways; yes evil is one of these ways. However, this is not always referring to a moral evil, but rather a "calamity", "disaster", or "trouble" as illustrated by the ESV below.
"4(E) The LORD has made everything for its purpose,
even(F) the wicked for the day of trouble.
5Everyone who is arrogant in heart is(G) an abomination to the LORD;
(H) be assured, he will not go unpunished.
6By(I) steadfast love and faithfulness iniquity is atoned for,
and by(J) the fear of the LORD one(K) turns away from evil."
I believe the verse is demonstrating the fact that God brings glory to Himself through the judgment of the wicked and the redemption of the wicked. I see no issues with this verse. I have no idea why atheists always appeal to some mysterious objective standard of good and evil and yet I have never met one who can articulate what that standard is and how a person can determine it.