Wouldn’t the holy power itself kill any undead such as player able to chose undread priest. Then we have Calia Menethil who is dead already but use holy magic.
Lorewise, very carefully. While some Undead are able to harness the Light, it brings great harm to themselves to do so. I think that was retconned out at some point, but that’s how it went early on.
I like to think Undead Priests were the foundation of Discipline. As the old Undead voice clip goes, “Patience. Discipline.” And being able to withstand the agony of utilizing Light magic fits the bill pretty well.
also there is lightbound undead now, I.E. Calia Menethil
The Light doesnt damage the wielder.
The Light also doesnt have to be “good”. It’s given to those devout. Look at the Scarlet Crusade.