As I would interpret it, there's three levels of deviation:
- Minor Transgressions: Following the code half-heartedly.
- Major Transgressions: Falling off the wagon of righteousness.
- Complete Betrayal: Obviously no longer committed to the ideals of paladinhood, if ever committed to them at all.
How bad the deviation is depends on the degree of code violation. This is where the beauty of the hierarchy of priorities from the last post really shines: I define a violation as failing to meet one priority because of over-emphasis on a lower priority, and the degree of violation is the distance between the two priorities.
So: If a paladin mostly obeys the code, but is slow to act or doesn't take every step necessary because of too much concern for a lower priority, that's a minor transgression. A paladin who saves only half the children in the orphanage because of wasting a few rounds worrying about getting burned, for example. There's no loss of ability for minor transgressions, but there may be whispers behind the paladin's back. Note that successfully saving all the orphans, or successfully rescuing comrades without getting in the fight yourself, or negotiating with an enemy to prevent a war, does not count as a transgression; it's not being concerned with your own survival that matters, but failing to meet a higher challenge fully because of concern for your own safety.
If the paladin absolutely fails to meet a priority because of being too concerned with a priority one step lower, that's a major transgression. This would be a paladin who shows cowardice (refusing to fight an opponent because of fear of getting hurt) or who risks comrades because of a thirst for vengeance. Paladins who transgress in this way lack confidence in the righteous path and may temporarily lose their abilities until they make atonement of some kind.
If a paladin fails to meet a priority because of being too concerned with a priority two or three steps lower, that's a complete betrayal. For example, abandoning comrades in a fight to save your own skin, or injuring innocents to get even with an enemy. This warrants complete, permanent loss of paladinhood. The bad ass action heroes who shoot through a hostage's arm to hit the bad guy using the hostage as a shield is not and can never be a paladin.
Now, what I would do for all of these is make a d6 situation roll each time there's a potential transgression; on a 5+, the transgression counts, otherwise it kicks down to the lower category. So, on a 5+:
- A single minor transgression results in people badmouthing the paladin; otherwise, they forgive immediately.
- A single major transgression results in temporary loss of powers; otherwise, just a bad local reputation.
- A single complete betrayal results in loss of paladinhood; otherwise, just temporary loss of ability requiring atonement.