The idea that he wanted a life of peace even before MK3 obviously comes from the MK2 story that he did not want to fight in the tournament and that he left the Order of Light to avoid being asked to represent them.

Well, the idea people are getting concerning Kung Lao's life of peace comes from when he chooses to fight. Before MKSM came around, people had looked at the official MKII comic, written by John Tobias, for the story setup for the game. In the comic, Kung Lao reunites with Liu Kang at the temple, which is in ruins from Outworld attack, and the way the converstation went between the two monks seemed to imply Kung Lao had left the temples to lead his own way of life instead of living one simply due to his ancestrial background.
Zatterianwarrior, you say his MKII bio and ending imply he's fueled by revenge. You're right, and that's exactly what most people here are trying to say, he's only fighting because Outworld has pushed him to doing so. What if Outworld had not attacked the temples? Would Kung Lao have chosen to step in? Doesn't seem like he would have since he was already off living his own life during the MK1 tournament. He only fought beside Liu Kang during MKII because those were his fellow shaolin as well. Of course he was fueled with revenge, that's natural. But again, that's the only reason he stepped in to fight, because Outworld went too far.
In MK3, Kung Lao is one of the last remaining humans on Earth. No choice but to fight. In MK4 he's living a life of peace at first, but later comes in (MK Gold) because the fight with Shinnok is one that can not be ignored. And of course, MKDA he fights to avenge his friend, Liu Kang. So everytime he stepped up to fight it was because he had to. That's why people got the idea he was a shaolin monk who prefered the life of peace. It may be true, like you and others said, that he only became that after MK3, but his MK3 ending could just the same be implying that this is how he's always been. So that issue is debatable.
Now Liu Kang on the other hand fights by choice. Not to say he enjoys it anymore than Kung Lao would, but I don't think he was raised with the same pressure as Kung Lao. Kung Lao, because of his family background, was probably trained for the sole purpose of becoming the savior of Earthrealm, and there's a good chance he left the Order of Light because he didn't want to live a predetermined life. This isn't a fact, but previous evidence seems to suggest this. So this was totally the opposite of MKSM, where he actually wanted to be a part of the tournament. Perhaps he did, but previous story elements suggested the opposite.
I'm not sure what happen to make Liu Kang decide to represent the temples. Again, I think this would have been revealed had John Tobias made the Liu Kang game he wanted to make after MK Special Forces. Tobias said he had an interesting background he wanted to explore, so I think something in his life made him realize he had the potential to defeat Goro and Shang Tsung. And perhaps we would have found out what really happened to his brother, Chow. Perhaps this had something to do with how he was led to the events of MK. But the MK1 comic clearly shows Liu Kang asking for permission to fight, and the elder monk granted him his request. Perhaps the elder monk took into consideration the battles Liu Kang went through before the tournament? Just speculation, since Tobias indicated Liu Kang had a history prior to MK1, so the elder monk must have seen something in Liu Kang to have him represent.
Like Kung Lao, Liu Kang left the Order of Light, but probably not for the same reasons as Kung Lao. I don't think Liu Kang was obligated to fight in the tournament at all, but chose to for whatever reason because it was the right thing to do. That's why Liu Kang has fought in all the games, his reason has always been the purest and most noble. He fights for the honor to save Earth, and he lives up to that responsibility to the fullest. So yeah, Liu Kang may be a "goodie-two-shoes," but I think his personality took some changes as time went on. He's always been the purest of the warriors, but MK1 through 3 he seemed more serious. At least the comics seemed to imply that he was more like a Bruce Lee type. He knew what MK was all about, and he seemed the most aware among his fellow warriors of Earth. He didn't strike me as naive or anything like that. It really wasn't until MK4 that they seemed to take that approach with him.
So after MK4 they seemed to make him naive and overtrusting. That didn't bother me too much, since it made Liu Kang's compassionate side more easily shown. That reminds me of how King Gorbak (Goro's father) was complaining to Shao Kahn in the MKII comic that the monks shouldn't have won because they are men of peace or something like that. I forgot the exact quote. But that's what makes Liu Kang so cool in my opinion, he's so pure, but he has the skills to take out evil and will do so because that's what he's all about. It shows that a pure heart is not a weakness like evil would have you believe, but a strength. Liu Kang is just awesome like that. He's the ultimate good defending against the ultimate evil. I like watching stories with two total opposites clashing together like this.
But the personality they're giving Kung Lao in MKSM isn't something I like as much, but I can accept it I suppose. Doesn't look like I have a choice anyway. But at least it seemed like Liu Kang and Kung Lao became true brothers by the end of the game, so at least Kung Lao's jealousy ended after MKSM. But I still like the pre-MKSM perception of his character much better.
EDIT: Oh yeah, forgot to say that I don't think Kung Lao would blame Liu Kang for the attack on the temple either. However, Kung Lao did seem to hint to Liu Kang in the comic that it was his victory that led to the temples destruction. This might be one of the reasons Kung Lao didn't want any part of Mortal Kombat, because of the violence and death that comes with it. But he assured Liu Kang that he would now fight by his side, so now that I think about it I don't think there was any blame on his part towards Liu Kang. I think this was Kung Lao's way of saying he realized that if Outworld's forces are not dealt with, that the temple would be only the beginning of a greater destruction, and Kung Lao was not going to let such destruction happen again. At that point, he was fully commited to fighting at Liu Kang's side. So they traveled to Outworld to put a stop to Shao Kahn's tyranny for good.

Kung Lao seems to be more of a big brother.
The part where he says " I will fight reptile, you can watch" is a defining moment of his flaws and also is one of many big brother little brother moments.
There is jealousy, sure but it is Kung Lao who seems to always be focused, wary, has better instincts and is a better leader (even though he does it unconsciously). The fact that he fights for honour and not glory says a lot.
It makes sense for him to be a little jealous as he IS more disciplined and deserving, but despite his flaws, he STFU and gets things done. Even if it means he has to sacrifice what he wants the most.
Which makes him a hero without trying to be a hero.

Wait guys, I thought Kung Lao's original MK2 story was that he was the sole survivor of the Taraka attack on the Shaolin Temples?

Thanks for explaining that point clearly, it is true one could interpret Kung Lao's bio as implying his desire for peace all along and there is no doubt that peace was his motive in MK3 and Gold(at least initially). But the reason I did not see his MK2 bio as one of a man of peace was because Liu Kang was also motivated by the destruction of the temples to go into outworld for vengeance so I did not see a clear distinction between the two at first. Anyway, that was just my impression which may not necessarily be correct.

He may have been but his MK2 bio does not really specify
Here it is:
"A former shaolin monk and member of the White Lotus society. He is the last descendant of the great Kung Lao who was defeated by Goro 500 years ago. Realizing the danger of the outworld menace he joins Liu Kang in entering Shao Kahn's contest."
Also his ending only says that he "grieves the loss of his Shaolin brothers" but no mention is made of whether or not he was the only survivor.

The comic doesn't really say whether Kung Lao was at the temple when the attack started, or it was already too late when he got there just like Liu, either.
The whole "ran away to avoid the tournament" thing seems to imply that Kung Lao would never have returned if it weren't for the attack, though.