I think it's different when the DM has to monitor Joe's every action because any little slip could cost him is powers, as opposed to monitoring Bob's actions because it could piss off the locals.
I think any feature of a class should be clear enough to warrant minimal explanation. Any aspect of a class or race or background that will require significant effort on the part of the DM to explain how it works in his particular game in this particular setting and so on and so forth is a feature that needs to be reconsidered. The discussion of the Paladin code of conduct should be a simple and straight-forward discussion, but not so concrete as to be immutable. There will be times when the player's understanding of the code and the DMs understanding of the code will differ not based on in-game concepts...but upon personal morality. Those are times that both sides need to be able to look to the rules as a neutral third party and come to an agreeable conclusion.
This is one reason I advocate deity-based codes, because "don't lie" is a terrible rule that leads to paladins who can't adventure properly with regular adventurers, but "don't lie except to protect the innocent and defeat evil." is a much clearer ruing that allows paladins to have some realistici breathing room. No LG patron of a LG paladin is going to approve of the paladin refusing to lie to the evil demon bent on killing the farmers when the demon asks him "where are the farmers!?" I would expect the paladin to reasonably be able to say "I'll never tell! You must kill me first!" and not get backhanded for not saying "over in the barn."
Both sides need to be clear with their DM about how they are going to play. Too often DMs change their mind and claim "I'm the DM, deal with it!" and players become sneaky so that their op build will be accepted before the DM can say otherwise...which then leads to DMs having to become more aggressive in the face of unethical players.
I have always wondered why clerics were never similarly limited, require a diety(any alignment), must adhere to that god's portfolio/alignment. Clerics get insane power....but have few limitations, I don't want that repeated.
I don't think it really calls for the DM to monitor every little slip. I certainly have never really done it that way. But I am listening and responding to what they are doing so if it is something noticeable I will respond the and it is the same for every character. I keep a little sheet where I jot down notes of what they do that I need to consider. Because I bring back consequences for what they do. Both good and bad they may not know they had an effect yet but often things they do will impact the game later on. This way the players see that their actions matter. I love the look on their faces when later something comes out of an action. Both the oh crap look when it is bad but also the pleased look when it is something good.
Playing in games where players are sneaky and DMs are power hungry are not really fun for anyone. All the well written rules won't save that kind of game.
In the games I play in clerics suffer the same as paladins if they stray to far. That is how I run games and most of the DMs I have played with do the same. We play a lot in Kalamar and it is written in the setting rules that clerics have to be the same alignment as their gods.