well, the paladins are not exactly paladins. So I guess he approves you choosing the right side.
Well I guess the question is how should he know.
Anyway, the current form of this quest is a bit rough, but I think there are also some good merits to it.
Like the fact that even when you decide to confront the paladins about their identity you get a convincing argument from their leader to stick to their side anyway (which I didn't, but still...).