If you want to take him to a church and pay them decently, they could cast Atonement on the creature -- assuming that it is willing (ie, it likes the paladin, who stands there and helps), it could change its base alignment without trouble. The paladin might take a geas as part of the payment.
Another option would be to lead a peaceful expedition into giant/ogre territory and leave the ettin with them. There are groups in real life who are enemies, and who consider the other side evil, but who wouldn't harm the youngsters of the other side. They'd return them.
Sets up a nice precedent, too -- you return the giant children after a raid kills the parents, they let the children of the merchants live after raiding their wagons. The spared children grow up with memories of the other side killing their parents in the middle of fighting, but sparing them -- which, over time, adds some moral ambiguity. Messy, but it becomes one of those interesting little steps towards mutual understanding. "We don't like you, we think you're evil, and we know that you'll hurt us if given the chance -- but we still don't want to kill your children."
-Tacky
Another option would be to lead a peaceful expedition into giant/ogre territory and leave the ettin with them. There are groups in real life who are enemies, and who consider the other side evil, but who wouldn't harm the youngsters of the other side. They'd return them.
Sets up a nice precedent, too -- you return the giant children after a raid kills the parents, they let the children of the merchants live after raiding their wagons. The spared children grow up with memories of the other side killing their parents in the middle of fighting, but sparing them -- which, over time, adds some moral ambiguity. Messy, but it becomes one of those interesting little steps towards mutual understanding. "We don't like you, we think you're evil, and we know that you'll hurt us if given the chance -- but we still don't want to kill your children."
-Tacky
You're not talking about.... Synchronous Bag-Pipes, are you?! 
