he was only a "villain" in 2 and Alpha. In 1 he was just the champ, and his fight with Ryu drove the both of them to insane limits that only ended up with the iconic injury
He's honorable, abeit brutal in a fight. He was remorseful for killing Dan's father.
But it was losing to Ryu and getting scarred by that Dragon Punch that drove Sagat to align with Sahdoloo, although he doesn't do anything criminal while a part of it.