God is good no matter what because goodness is defined by what god does.
This argument seems circular, but it is more rational than it would first appear. The problem is shifting frames of reference. Are good and evil defined using absolute terms — or relativistic ones? If absolute, who is the authority (God, another god, current social mores)? If relativistic, whose frame of reference is being used (yours, mine or a consensus of your friends or mine)?
What is happening in your sample dialogue is exactly this shift. The Theist clearly believes in God as an absolute authority. Thus, it is perfectly rational for him to say: “God is good no matter what He does.” The very definition of “good” is “what God approves,” and the definition of “evil” is “what God disapproves.”
The Atheist typically believes in either his own judgment, current social mores — or a combination of both. That’s why the conversation shifts perspective and goes nowhere. What if God does something evil? Well, evil by whose definition? Who decides what is evil or good?
It’s also important to keep in mind that Theists believe God’s thinking is superior in every way to human thinking. We are not God. We do not have his omniscience and omnipresence. We are inside time, and He is outside of it. Like little children, we are not able to see the consequences of our own actions, so we must follow His rules, be humble and accept that He has a plan. A human challenging God with logic is cute and all, but it’s much like a young child challenging a parent’s logic. You just can’t explain things to the child in a way he or she can understand.
The Apostle Paul captures this nicely in his letter to the church at Rome:
“What then shall we say? Is God unjust? Not at all! For he says to Moses,
‘I will have mercy on whom I have mercy,
and I will have compassion on whom I have compassion.’
“It does not, therefore, depend on human desire or effort, but on God’s mercy ... God has mercy on whom he wants to have mercy, and he hardens whom he wants to harden.
“One of you will say to me: ‘Then why does God still blame us? For who is able to resist his will?’ But who are you, a human being, to talk back to God? Shall what is formed say to the one who formed it, ‘Why did you make me like this?’ Does not the potter have the right to make out of the same lump of clay some pottery for special purposes and some for common use?” (Romans 9:14-16 & 18-21)