The problem with fascism is that it's ultra-vague. Historians have been trying to classify what fascism exactly is since Mussolini came around. If they can't define it then I doubt anyone here will have much success with it - of course, I'm not saying you can't do it, just that it has the potential to get messy really quick.
As far as offending anybody, fascism by itself was not particularly terrible (or should I say, not any worse than any other form of totalitarian rule), and in fact it was the 'fad' in Europe in the 20's and 30's before Hitler had to go piss on everyone's parade. For all intents and purposes, a guy like Mussolini is practically harmless compared to most communist leaders (which we all seem to be okay with). It's just the word 'fascism' has become a synonym for Nazism and we all learned that Nazis are evil from Wolfenstein 3D.
On the flip side, Nazism was an offshoot of fascism that introduced an almost obsessive emphasis on racial purity. If you for one second think this is a good idea to bring into a video game...um. It ain't.
Anyway, my point would be - if you do decide to try out a 'fascist-like' faction, a) consider not using 'fascist' in the name, and b) don't base it on the Nazis. That's just asking for trouble.
Regulated as in; not going over the top. It would be ok to roleplay as a fascist, but that roleplayer cannot try to hide behind the "roleplaying" barrier if they are being racist. Even if it is I'm character, we cannot promote racism or anything similar.
From reading the first post you don't intend for this to happen, but there's a possibility.
(not reading 8 pages of what could be flaming, I apologize if I'm wrong)
Fascism and Communism, both workable government structures for countries, sadly, both are tainted by dodgy leadership war, and other humanity crimes.
Hitler and Stalin butchered the ideals of both government styles. can you imagine Communisim without the paranoid Stalin? Sometimes I wish that these days.
A fascist group would be a sort of politically/military aggressive in my eyes since they're fiercely nationalist.