Of course, Motivation isn't everything, and some things just cannot be justified.
My favorite example of Absolute Morality and why it works the way it does is this:
A horrible something (what really does not matter, necromantic plague, demonic ascension, total annihilation, etc) assaults a Lawful Good kingdom. A ritual conveniently finds its way into the hands of the Lawful Good king, which works thus:
a Paladin from outside the kingdom without any connections to it must come and sacrifice the King's eldest daughter, damning her soul for all eternity, or the kingdom and all its inhabitants will suffer a terrible fate.
The choice, while horrible, seems simple enough: either damn one soul or doom thousands.
So, a Paladin hears about the situation and rides in.
He goes through the motions, everything is set, but a the last moment he hesitates, and thus dooms the entire kingdom. The unfortunate citizens (even those who fled the country) all (eventually) die, but most end up in the Lawful Good afterlife (since the kingdom was Lawful Good). Meanwhile, the Paladin goes to the Neutral afterlife for ultimately failing his duty.
The other choice is sacrificing the princess, which does in fact save the kingdom. It also irrevocably turns the Paladin Lawful Evil, thus setting the stage for conquest and subjugation of multiple kingdoms, which was the real objective the entire time (though killing off an entire kingdom is convenient, its not the goal).
The Right Choice, ultimately, is to take a third option - find out where the ritual came from, discover who is ultimately responsible for what is about to happen, and stop it, hard. Of course is difficult and unexpected, but that's what heroes do.
Having Absolute Morality is what lets this happen. If everything were relative, then there would not necessarily be a third option. but in a game about playing heroes, there has to be or the whole thing falls apart. Throwing this situation at a Paladin without including the third option is unfair; in World of Darkness it's a perfectly legitimate thing to do.
Well, if you think of going to a Lawful Good afterlife as being a terrible fate, then what' so bad about killing the king's daughter? What if she wants to make the sacrifice for her people, knowing that it is the only sure way to save them? The paladin would not be committing an Evil act by killing her, because he is enabling her to save her people (and he could always use his magic to follow her to whatever fate she is sent, and save her soul directly). Saving the many is a sure thing at this point, by taking the life of one. I don't see how this is setting the stage for the subjugation and conquest of multiple kingdoms or how it will make the Paladin Evil forever; that wasn't listed as part of the scenario until after you explained the conclusion (it sounds like a gotcha!). By killing the princess according to her wishes and then fighting for her, the paladin shows that doing good is more important to him than retaining his paladinhood. The paladin keeps his paladinhood because he refused to put his pride before the lives of the people of the kingdom.
The second option, ignoring the situation, is far worse. Not only will the princess die or whatever, but so will the rest of the kingdom, and they will probably suffer fates worse than death. A Lawful Good person would not follow this course of action unless there was something far more pressing. The paladin should lose his paladinhood, at least until he atones.
Your third option, attacking the source of the problem, is full of risks. It takes time to research, time to execute, and time for the execution to have its effect. It could easily be too late by the time the Paladin finishes his task. Beyond that, the Paladin could actually fail. He is gambling the lives of an entire kingdom's worth of people against the fate of one person. That kind of arrogance is damnable. He isn't being a hero; he is merely trying to look like one. He should forever lose his paladinhood for putting so many people at risk for the sake of his own pride. He can go on doing good deeds, but his pride will always prevent him from being a true paladin.
Now here are some alternative solutions:
1) Kill the princess, have the king disinherit her, then raise her from the dead or perform a quest to save her. Unless she plotkilled by Sephiroth, the raising should work. If she was plotkilled by Sephiroth, a quest should allow the Paladin to atone and save her or at least make her death more significant. Perhaps she could become more powerful than you can possibly imagine, and haunt the paladin until he is capable of returning to his vocation.
2) Have the king abdicate his throne to his daughter and forever change his kingdom into a "queendom". Nonexistence is a terrible fate for a kingdom, and all 0 of its inhabitants would suffer eternally. This would lead to an interesting story when a man attempts to take over the kingdom, but that could be handled later.
3) Determine that the ritual that the king found was misinterpreted. Perhaps the ritual says that the paladin must "take the princess's life upon the highest altar in the kingdom". While this looks like a euphemism for killing, it could just as easily be a euphemism for marriage, a small drawing of blood, or even the cutting of the princess's hair.