I'm A Banana
Potassium-Rich
As the DM of a slightly "morally ambiguous" group, I've had to face similar problems...
Advice I can give is as follows:
A) ALWAYS have the villains well-prepared. My Old Man Speech above isn't just superfluous...if they're dedicated cultists, why would they leave their treasure open to attack? If the hags didn't have something that concealed their alignment, they're playing with fire when they approach a party with an obvious Paladin in the group. Villains are capable of planning and preparing. Their reputations as heroes probably go before them.
So the kid was hit for 5 points of damage? They're clerics. They heal it.
B) Have the story driven by the characters rather than NPC's. This is a stubtle change, but a real one. They're not just saving the kid because They're Heroes. They're saving him because he's *they're* kid. Those elvish maidens are actually found in this area -- as one of the PC's wife is evidence to. Intricately intertwine a long plot with the PC's themselves and loved ones. Perhaps Destiny Foretold them, or perhaps they're to stop the advent of a villan that Destiny foretold. This is something I can't really explain well now, but I think that's the gist -- have the plot deeply affect the characters.
Advice I can give is as follows:
A) ALWAYS have the villains well-prepared. My Old Man Speech above isn't just superfluous...if they're dedicated cultists, why would they leave their treasure open to attack? If the hags didn't have something that concealed their alignment, they're playing with fire when they approach a party with an obvious Paladin in the group. Villains are capable of planning and preparing. Their reputations as heroes probably go before them.
So the kid was hit for 5 points of damage? They're clerics. They heal it.

B) Have the story driven by the characters rather than NPC's. This is a stubtle change, but a real one. They're not just saving the kid because They're Heroes. They're saving him because he's *they're* kid. Those elvish maidens are actually found in this area -- as one of the PC's wife is evidence to. Intricately intertwine a long plot with the PC's themselves and loved ones. Perhaps Destiny Foretold them, or perhaps they're to stop the advent of a villan that Destiny foretold. This is something I can't really explain well now, but I think that's the gist -- have the plot deeply affect the characters.