The current 'in favor' theological argument, if I recall correctly, is that God didn't create evil but instead allowed evil to exist by allowing for free will. In this way, people can choose to be evil. So, we create evil. However, we also create good.
So God did not create evil in the same way he did not create this sandwich. I made the sandwich, God merely allowed it to be created. Similarly, God did not create evil, he simply gave man the capacity for evil under the umbrella of 'free will'.
The other arguments (that I can think of off the top of my head) are that: God did not create evil, man did through sin and the Fall. There is no evil. There is no evil in toto since the rewards of heaven outweigh it. There is no evil, only what we think of as evil. Evil is necessary so that we understand good. There is no 'best/perfect' world, therefore any world God created would be flawed and for whatever reason he chose to make this world.
What you're referring to seems, to me, to be a version of the Epicurean paradox (which was actually about the Greek Gods). "Is God willing to prevent evil, but not able? Then he is not omnipotent. Is he able, but not willing? Then he is malevolent. Is he both able and willing? Then whence cometh evil? Is he neither able nor willing? Then why call him God?" More generally, it's the Problem of Evil.