I think you are conflating two separate issues -- the "problem of evil" and the implications of free will. Treating them separately will make the arguments clearer.

The problem of evil is usually framed something like this:

• God is omniscient (all-knowing)
• God is omnipotent (all-powerful)
• God is omnibenevolent (all-good)
• Evil exists.

This is usually covered in Philosophy 101 under Arguments For/Against the Existence of God. Students are left to debate the veracity of the incongruous statements above.

The question of free will is related, but is distinct. In religious arguments, it is at the center of the discussion on punishment. If God is omniscient (#1, above) then a person's path must be set. There is no free will. His eventual mortal sins were pre-ordained and he will spend an eternity suffering for acts that he couldn't "not" do. That is hard to stomach. But the alternative, for many, is worse. If free will exists and we can decide our own path in life, then punishment for bad behavior seems just. But this also means that God cannot know, a priori, which path a person will take and that goes against the claim for omniscience.