In our Scarred Lands game, our primary melee fighter (and the one who deals the most damage) is a high-strength, high-charisma paladin of Madriel (goddess of healing, mercy, etc.). I don't think things would work as well for us if we swapped her out for a fighter; yeah, we'd be gaining a slightly nastier combatant, but we'd be losing a massive amount of healing per day, a vicious smite attack against all the BBEGs we run into, the only character with a really good diplomacy score, and a second-tier undead-turner. In fact, in a few more levels the paladin will probably become the primary undead-turner, since our cleric has started in on a prestige class.
Basically, as far as what makes our party effective in game terms goes, the paladin is practically irreplaceable. We fight a lot of evil creatures, and a lot of undead; the extra feats a fighter would have just wouldn't make up for losing the things our paladin can do. Not to mention the fact that the setting really makes paladins popular with ordinary people, particularly really charismatic paladins of a very well-loved goddess, and the fact that the setting has a lot of genuinely and obviously evil factions to square off against.
The LG ethic hasn't caused us any problems, mostly because without really thinking about it we've been following some of the advice in this thread. We've been considering the "Good" part to be much more significant than the "Lawful" part, for example. We've also been assuming that the Lawful part is dependent on the tenets of the faith the paladin follows, and that the paladin's responsibiliy is to adhere to them herself, not to try to enforce them on other people.
Our GM isn't interested in being a jerk about it, either. As long as the paladin's player is satisfied that she's following her code of ethics appropriately and the GM is satisfied that she's not doing evil, she gets a fair amount of latitude. For example, she'll try not to lie, but under some circumstances (say, talking with an evil person) she is clearly under no obligation to tell the complete truth and nothing but the truth. As long as she doesn't compromise the cause of good and her own personal integrity, no one's going to start nitpicking.
It also helps that with the paladin, 3/5 of the party is good-aligned (the other two are neutral, of course), so party votes not only end up going the paladin's way, but few votes even occur that aren't about something the paladin would be willing to participate in anyway. Even the neutral people are generally in favor of deeds which vanquish the tide of evil in the world, because it makes things better for them and it's awfully lucrative.
It's a good fit for that game and that group, and not a bad class at all. This latest experience has definitely made up for all the high school games I played in where the paladin's player thought his alignment was Lawful Obnoxious and the GM spent over half the game looking for ways to screw the paladin over.
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a recent convert to 'paladins are cool,' but a very devout one
ryan