Well, despite Leif argument, you did not kill them for their loot. You killed them because they served evil, would not repent, and attacked. If Sheldon leaves the stuff, another evil creature may come along and use it to further the aims of the demons. Far better for a paladin to take the loot (baring anything of a personal nature a prisoner holds say) and use it to build orphanages and widow's homes for all the slain paladins and soldiers who have bravely fought the demonic insurrection. Not to mention all the reconstruction the country will need to do. It is as Leif said up to the paladin and his deity and code (and I have never ascribed to the whole LG = lawful stupid thing), but the spoils of war, legitimate war against an enemy who is absolutely evil, and turned to the purposes of good, sounds to me like a very paladin-like act.