a hashkafa of "lo nachon" vs a hashkafa of "assur" -- should we have an innate sense of right and wrong?

When Pharoah finally gave in a little bit and told Moshe that he can offer korbanos provided he do so in Mitzrayim, Moshe turned him down.  "Lo nachon la'asos kein ki toavas Mitzrayim nizbach..." (8:22).  Chasam Sofer notes Moshe's choice of words -- "lo nachon," it's not the right thing to do.  The Egyptian people don't want to see us sacrificing their gods.  It's not menchlishkeit.  Pharoah, you think we are a bunch of barbarians, but that's not who we are.

This diyuk of Chasam Sofer I think speaks to the difference between my father's generation and my children's generation.  The vast majority of Jews of my father's generation were not yeshiva educated and did not think in terms of assur or mutar, what it says in a seif katan somewhere in the mishna berura.  But those old timers knew the words, or the concept, of "lo nachon."  Certain things were just not done because it was not right.  Today, baruch Hashem our kids all know how to dig up all kinds of obscure chumros brought down in all the latest seforim, but the concept of "lo nachon" seems to have vanished.  Too many people seem to have no inner moral compass, no innate sense of right and wrong, no thought as to what is proper before they even get to what it says in Shulchan Aruch.

The Yerushalmi in B"M (8a) relates (I'm quoting the Sefaria translation):

Shimon ben Shetah was dealing with flax [as his profession]. His students said to him: ‘Master, leave it behind and we will buy you a donkey and you won’t need to work so much,’ and they bought him a donkey from an Arab, and it had a jewel hanging from it[s neck]. They came to him and said him: ‘from now on you won’t have to work again.’ He said to them: ‘why?’ They said to him: ‘ We bought you a donkey from an Arab and it had a jewel hanging from it[s neck]!’ He said to them: ‘Did the owner know?’ They said to him: ‘no.’ He said to them: ‘go return it.’ [Later students objected to this story:] But didn’t Rav Huna Bibi bar Gozlon say in the name of Rav, said they responded before Rabbi, even according to the one who says an item stolen from a gentile is prohibited, all agree that an item lost by a gentile is permitted!?’ ‘What, do you think Shimon ben Shetah is a barbarian? Shimon wished to hear ‘blessed be the God of the Jews’ more than all the wages of this world.

The difference between Shimon ben Shetach and his students is the difference between a world view of assur/mutar and a world view of lo nachon.

So which is better -- to know something is wrong and refrain from doing it out of instinct, or to always have to look up the din in Shulchan Aruch to know good from bad?

Sounds like this is exactly the question the Rambam addresses in Shmoneh Perakim (ch 6).  Rambam asks: the Torah is supposed to shape a person to be moral, to not want to steal or harm people, etc., yet Chazal tell us that a person should not say that he doesn't want to eat pig because it is not healthy or tastes bad, but rather because Hashem said not to eat it.  In other words, don't refrain because you think it is wrong, just obey because of what it says in Shulchan Aruch!

The Rambam distinguishes between mitzvos sichliyos and other mitzvos.  It makes rational sense to not steal, so a person should not want to do so.  It makes no sense not to eat pig, so we obey simply because G-d said so.

The distinction is not as clear cut as it seems.  R' Amital in this piece, based on R' Kook, greatly expands the category of rational mitzvos to include things like observing Shabbos.  The Shem m'Shmuel (Parshas Tzav) goes a step further (I recall seeing my wife's grandfather also took this same approach, but can't track down where at the moment):

האומנם כי לכאורה יקשה על הנחה זו מהא דאל יאמר אדם אי אפשי בבשר חזיר אלא אפשי ואבי שבשמים גזר עלי, וידוע דעת הרמב"ם שיצא לחלוק בין עבירות השכליות והשמיעיות, ולדידי הפי' עפ"י דברי הא"ע בלאו דלא תחמוד שרבים תמהו איך אפשר שאדם לא יחמוד לדבר יפה ונחמד לעיניו ונתן משל לזה שהוא כמו שלא יתאוה האיש להיות לו כנפים לעוף למעלה כי דבר הנמנע לא יתאוה לו הטבע, ככה צריך איש הישראלי לידע שכל דבר שלא ניתן לו מן השמים לא שייך אליו כלל כמו כנפים לאיש ולא יכול לקחתו בתחבולותיו והוא נמנע ממנו ע"כ לא יתאוה לו כלל ודפח"ח, ואף אנו נאמר שכ"ש דבר שאסרה תורה היא עוד יותר נמנע מפחמין לאכילה, ומה שאמרו ז"ל אבל אפשי ואבי שבשמים גזר עלי, היינו שבאם לא הי' גזר הי' באמת דבר טוב כי הביט בתורה וברא את העולם, ואם עפ"י התורה הי' זה מותר ומאכל לאיש הישראלי אז הי' לו צורה אחרת והי' באמת טוב, אבל עכשו שהתורה אסרה אין זה רק רע וכפחמין לאכילה ואי אפשר להתאוה לו כלל, וע"ד זה תקיש לכל העבירות שבאם לא אסרה תורה בהכרח שהי' לו צורה אחרת והי' טוב וראוי, אבל עתה שאסרה תורה שוב נמאס ואין ראוי להשתוקק אליו, וע"כ המשתוקק אליו הוא חוטא וצריך כפרה:

The only difference, says Sm"S, between a mitzvah sichlis and a mitzvah like not eating pig, is whether the mitzvah a priori makes sense.  However, once G-d commands us not to eat pig, we have to view eating pig as repugnant, as something we would never want to do.  

He draws an analogy to the Ibn Ezra's interpretation of lo tachmod.  Ibn Ezra asks how the Torah can command a person not to desire something -- can a person control his heart?  You see you neighbor has a nice car and nature takes over and you want it.  Ibn Ezra answers that a pauper would never dream of marrying a princess -- his mind places it so far outside the realm of possibility that it's unimaginable.  It would be like having a desire to flap your arms and fly.  So too, once G-d commands us not to eat pig, to us that act has to become like some unimaginable fantasy, a thought we would never entertain, much less struggle to overcome.

Ibn Ezra is speaking on a psychological level as to what drives a person's attractions and desires.  Sm"S is going a step further: It's not just that psychologically we must view eating pig as unimaginable (irrespective of whether there is really any harm in doing so), but that once G-d commanded it, it actually becomes morally so.