In Ephesians 2:1-10, we read the following:
1 And you hath he quickened, who were dead in trespasses and sins; 2 Wherein in time past ye walked according to the course of this world, according to the prince of the power of the air, the spirit that now worketh in the children of disobedience: 3 Among whom also we all had our conversation in times past in the lusts of our flesh, fulfilling the desires of the flesh and of the mind; and were by nature the children of wrath, even as others. 4 But God, who is rich in mercy, for his great love wherewith he loved us, 5 Even when we were dead in sins, hath quickened us together with Christ, (by grace ye are saved;) 6 And hath raised us up together, and made us sit together in heavenly places in Christ Jesus: 7 That in the ages to come he might shew the exceeding riches of his grace in his kindness toward us through Christ Jesus. 8 For by grace are ye saved through faith; and that not of yourselves: it is the gift of God: 9 Not of works, lest any man should boast. 10 For we are his workmanship, created in Christ Jesus unto good works, which God hath before ordained that we should walk in them.
Opponents of Free Grace Theology often cite Ephesians 2:10 as proof that all saved people will perform good works. According to them, these good works are not the cause of salvation, but the result (or, more specifically, the evidence) of salvation. To counter this claim, most proponents of Free Grace point out that the word "should" in verse 10 is in the subjunctive mood, indicating only God's purpose for saved people, not the necessary reality. For example, the subjunctive mood is also used in John 3:17 where it is God's purpose to save the world. However, we know that not everyone gets saved during this life.
Personally, I think that both sides of the argument are correct about Ephesians 2:10. I believe that all of God's purposes will be fulfilled eventually. I also believe that all saved people will eventually perform good works. However, at the same time, we know that people can resist God's will during this life. In the case of the Ephesians, the Apostle Paul tells them, "And grieve not the holy Spirit of God, whereby ye are sealed unto the day of redemption" (Ephesians 4:30). Here we see that saved people are sealed unto the day of redemption (i.e., completely secure), yet they are still capable of grieving the Holy Spirit.
In light of the above considerations, I would like to give my opinion on Ephesians 2:10. I believe that all saved people will perform good works, but not necessarily during this life. The context of Ephesians 2:10 shows that the Apostle Paul has in mind not only the present age, but also the ages to come (verse 7). In this respect, any saved person who fails to perform good works during this life will certainly perform them in the ages to come after he receives his glorified resurrection body.
In addition to the above, I think it is important that we don't read too much into passages that speak of the collective whole, as opposed to every individual member of the whole. In the case of Ephesians 2:1-3 and Ephesians 2:10, we might be tempted to conclude that what is true of the Ephesian church as a whole is also true for every single member in that church. However, in the case of the Ephesians, we know that at least some of them did get carried away with heresies (Acts 20:29-30) and they were criticized for leaving their first love (Revelation 2:4-5). So, we see that even a good church can have some bad individuals and be at risk of becoming a bad church. As another example, consider a baseball team that wins the World Series. The team would certainly be described as a good team, but that does not necessarily mean that every single player on that team is good. Likewise, the church of Jesus Christ, when viewed as a whole, is glorious and full of good works. However, that does not mean that every single person in the church of Jesus Christ is living in a manner pleasing to the Lord. In fact, the New Testament gives us several examples of saved people who were living in sin, heresy, and perhaps even apostasy (see, for example, some of the Corinthians, Galatians, Hebrews, the recipients of James letter, and some of those of the seven churches in Asia). Of course, such a state is lamentable, but it is the reality of things this side of heaven until we get our glorified bodies (Romans 7:24-25).
As long as we are in "the body of this death" (Romans 7:24), none of us can really claim to be good. In Ephesians 2:5, the Apostle Paul explained that God accepted us as "being dead in sins" (present participle in the Greek). It was in this state of "being dead in sins" that He "made us alive together with Christ," "raised us up together," and "made us sit together in heavenly places in Christ Jesus." Paul describes this as the grace of God (see the parenthetical comment in verse 5). These three things are all positional truths expressed by the aorist past tense. There is no undoing these things. God performed these things for people who were in a state of "being dead in sins." As a result, there is no necessity, in terms of salvation, upon such people to repent of sins. God accepted them "as being dead in sins." Now, God, in his mercy, enables many of these people to gain some degree of mastery over sin this side of heaven, but again, this is not out of necessity. He saved us as "being dead in sins." So, while it might seem unimaginable to some people, it just might be that God intends to show the "exceeding riches of his grace in his kindness toward us through Christ Jesus" (Ephesians 2:7) by allowing some people (perhaps only a few, or perhaps more than we could have ever expected) to live their whole lives in an unrepentant state in order to show the absolute freeness of his grace "in the ages to come" (verse 7, also Romans 3:24). In such a case, God's creatures will certainly stand in awe at the depths of the grace of God when they find out that some lifelong drug addicts and prostitutes are set free from their ordeal and enter into glory upon death all because they believed in Jesus Christ for eternal life when they were seven or eight years old. Certainly such a gracious and condition-free salvation presents a stumbling block to most people, and I can imagine such hypothetical questions as "What about Hitler?" or "What about child abusers?", but I dare say that none of these objections are able to thwart the grace of God. It is God's purpose that we perform good works, and his purpose will be accomplished in this life or the next, but we must not forget that He is working all things according to His own pleasure, not according to the cookie cutter standards of "Christian living" presented by many theologians.