There are Sins of Commission, and there are Sins of Omission. Both are sins. If God tells you to go, do, and you go but don't do, or don't go, it is still a sin.
Now when the paladin used the sword, he was attempting to destroy it. Fine. I have no problem with that, so far.
If he knew that it had an evil personality, and that he would be involved in an Ego battle, though, then he risked allowing himself to be possessed. That is at least foolish. If he used it, again, after the first time, then he did it with full knowledge.
He DID know that he was returning the evil sword to the BBEG, though, and did it for filthy lucre! This, at BEST, is a neutral act (and also very foolish). He is also more worried about his own worldly gain than what the BBEG is up to with the FantaNazis and the sword.
I would have the angel appear to him while he slept, unable to answer. I would have him sternly explain all this to the paladin, then point his finger at him, and pronounce:
"You have acted very foolishly. Therefore; let the punishment be of your own making!" Then he disappears.
After a restless night's sleep, when the paladin arises and prays for spells, I would have the angel's voice answer him:
"Not this time, Charley. You act as a fool, you now ARE one!"
He suddenly finds his WIS has been reduced to 9 (-1 on all Will saves), he has no spells (and couldn't cast an Orison if he had one), and remains thus until he has recovered the sword, destroyed it, and had a Cleric-in-Good-Standing cast an Atonement on him.
All his other paladin powers and abilities still work just fine, unless based upon WIS.
That's how I would handle it. You can do what you want.