See, if he had just killed the prisoner quickly... that would be okay with me. That would be defending the paladin's honour (and his deity's) and attempting to deal with an evil threat. The execution via dragging after being cut at the knees is without honour. It is more in line with a follower of Tiamat. I don't think there'd be any in game rules consequence, but I think the paladins will not just let him go with a slap on the wrist.
4e paladins are not 3e paladins. That said, I think its important for the player of a paladin and the DM to work out and agree to the paladin's code of conduct.
It could be that this is a disagreement on character concept between you and the player. It sounds like he is dead set on a "Dirty Harry" PC thats acts for the greater good as he sees it but is ruthless in doing so.
So when the prisoner tried to push his buttons the PC acted abruptly to maintain his character concept.
Note that you as DM decided the prisoner died en route, escalating the issue. While this is plausible if he was being dragged behind a horse, it didn't have to happen. The prisoner could have survived, perhaps crippled. There could have been a wagon to rent/buy/commandeer to carry him.
Punishing the player or the character for his character concept won't work if the player disagrees with the necessity. It sounds like the PC will never be a shiny paladin like the 3e stereotype.
Fundamentally, if this is the way he wants to continue to play the PC, you have to decide whether you can live with this. There is plenty of room in a church for varying points of view even within an alignment. The PC sounds like he could be from a hardliner faction.
Or maybe a change of deity would help, one whose code better suits the character concept.
I remember a 2e D&D campaignI was in as the de facto commander of a military unit. My PC was LG and squeaky clean. We were escorting two prisoners back after a patrol and after an initial attempt by them to escape and alert their allies, my PC warned them they would be executed if they attempted it again.
And when the prisoners attempted to escape for the second time, unsuccessfully, it turned out the DM had forgotten about the threat. So he was surprised when the first action of my PC at the start of the next session was to order their immediate execution.
After the first prisoner was executed the second became very helpful, volunteering all sorts of information to save his neck.
Anyway, I suspect that the player of the paladin hopes that being a hardliner will get results, intimidate enemies into respecting him. Its important that you find out what he wants and seeing if it makes sense to you, so you can reach some sort of mutually acceptable compromise.