looong...
178) Shapechangers have slowly been taking over an isolated, medium-sized town. They've replaced all the town's rulers, spellcasters, the mightiest warriors and the richest merchants with their own kin. By the time the PCs arrive at the scene the shapechangers are already defeated by the town militia, aided by a high-level paladin. Half the population is dead, either assassinated during the initial shapechanger invasion or killed in the battle to get rid of the shapeshifters.
The paladin has seized control of the town and declared martial law; partly as a safety measure (there
could still be a few more shapechangers lurking about!

), but also to prevent looting. He intends this to be a temperary measure of course, until new rulers can be elected and any heirs to the estates of the towns wealthy rulers and merchants can be tracked down.
Unfortunately the paladin has gone crazy with paranoia. He doesn't trust anybody anymore; sometimes he even wonders if he himself might be a shapechanger.

To prevent further killings, he keeps the entire town in an iron grip. Any behavior he finds suspicious (which in his state means just about any behavior!) means immediate arrest and interogation. Houses are being searched seemingly at random, people are getting strip-searched in the middle of the street etc. All of this done in the name of the common good of course!
The paladin is well-meaning, but unable to grasp the consequences of his actions (CG or maybe CN). Obviously, he's lost his special powers because of the allignement-shift, and this only increases his paranoia. Has his deity abandoned him, or maybe the even the
deity has been replaced by a shapeshifter?!?

All the clerics turned out to be shapeshifters...

It should be clear to all that he's gone off his rocker. Those of the militia that still take orders from him do so either because they're afraid not to, for the twisted pleasure of harrassing their neighbours or simply because of the looting-potential the job currently offers.