There's no such thing as good if there's no possibility of bad. There's no way to say "I love you" without the possibility of saying "I hate you". The God you describe is a tyrant.
Are you implying god *can't* create a world where there's good without bad? You seem to be underestimating 'eternal power' a bit.
If you'd ever done anything creative in your life you'd realize what an absurd statement you're making. "Good" is a value judgement. If everything's 100% it's the exact same as all 0%.
View it this way: There are people that kill other people and ones that don't. Instead of creating both types and then torturing the bad one, only create the one that doesn't kill!
Interestingly, you've pinpointed the exact meaning of "the knowledge of good and evil". It goes something like - I know how I can be hurt, therefore I know how to hurt you.
And if I know how to hurt you(and I'm afraid of being hurt myself), I can use that knowledge to exert power over you. Keep in mind there are worse fates(by far) than death.
So you're asking for a world of beings that are incapable of murder, torture, slavery or inflicting any pain on another - So like a world with only trees and shrubs? That's good?
There's many things God can't do and it makes perfect sense. Eg., God can't lie. "Good" is a direction, so to create a "good" necessarily implies creating the possibility of bad.
So, theoretically speaking, what did God do that's wrong? Create a world where "bad" is possible? (not trying to be argumentative here, I want to hear your point of view)
I don't think so - the assumption was that as a perfect being God doesn't commit "wrongs" and "wrongs" are required for the feelings of guilt - sociopaths don't feel guilt.
Yet, they do not feel guilt for it which is what makes them sociopathic. God doesn't feel guilt for what he does regardless - whether Gods actions are interpreted as "wrong" or not.