Henry
Autoexreginated
Just because someone is evil does not mean they are unlikeable. 
More to the point, all of the wrangling we do doesn't mean a hill of beans, because no matter what the PHB says, no matter what alignment Meepo, Tony Soprano, or Barney the Purple Dinosaur is, what matters is that they WAY you play the paladin matches up with the pre-established definition of "how evil is evil" with you and the DM.
In my situation, I would not be upset if the paladin killed the kobolds and baby dragon, NOR would I be upset if they let them live out of mercy. Protecting the innocent demands that possible threats are dealt with; yet mercy and justice demands you not kill a being out of potential evil. Ultimately, the kobolds are responsible for their own actions, which includes whatever they have done to be evil up till that point. If they get killed for those transgressions, that's what the paladin is there for. If the paladin shows them mercy, that's his choice, just as it is the kobolds' and dragon's choice for any later evil that they do. It's the whole "murderer tells you to kill someone, or he'll kill your family" conundrum - the false notion that your refusal to commit evil makes you responsible for someone else's evil.
In other words, the coin turns both ways freely, but the only way correct for the game is what you and the DM agree on.

More to the point, all of the wrangling we do doesn't mean a hill of beans, because no matter what the PHB says, no matter what alignment Meepo, Tony Soprano, or Barney the Purple Dinosaur is, what matters is that they WAY you play the paladin matches up with the pre-established definition of "how evil is evil" with you and the DM.
In my situation, I would not be upset if the paladin killed the kobolds and baby dragon, NOR would I be upset if they let them live out of mercy. Protecting the innocent demands that possible threats are dealt with; yet mercy and justice demands you not kill a being out of potential evil. Ultimately, the kobolds are responsible for their own actions, which includes whatever they have done to be evil up till that point. If they get killed for those transgressions, that's what the paladin is there for. If the paladin shows them mercy, that's his choice, just as it is the kobolds' and dragon's choice for any later evil that they do. It's the whole "murderer tells you to kill someone, or he'll kill your family" conundrum - the false notion that your refusal to commit evil makes you responsible for someone else's evil.
In other words, the coin turns both ways freely, but the only way correct for the game is what you and the DM agree on.