Current thoughts: after sleeping on it, I'm not sure whether I'll bump it to an encounter power. Burst 3 for the length of the encounter, every encounter, could effectively give the PCs a +1 to AC, since a 7x7 square is a large enough space to allow for a lot of tactics.
I think this will depend on how mobile your games are. In my games, sometimes the power has been awesome, and sometimes its barely come up. After playing with it a long while, none of my group thinks its overpowered as an encounter power, so that's for you to decide.
You could also consider keeping it as a daily but adding something else to it...for example (to go with the defender motiff), if a monster with the paladin's challenge attacks someone other than the paladin, the mark damage increased by 5 or something (just throwing an idea off the top of my head).