If you look on the Blizzard paladin class forums, you'll see a lot of unhappy paladins. They feel that we are unable to tank, or do damage, or even heal effectively. They feel that in the endgame the paladin is reduced to a mediocre "buffbot", who's sole purpose is to provide buffs to other classes who do the real work.
There is some truth to these complaints.
However, I think that the problem with paladins goes deeper than this. The paladin class is not underpowered, in my view. The problem is that it is designed for a different game than the one that exists. The paladin class is designed for levels 1-59 5-man PvE. It simply has not made a successful transition into PvP or raiding.
To see my point, remove the paladin and shaman, and take a look at the other classes in WoW. There is a lot of symmetry in place. We have one tanking class (warrior), one healing class (priest), four DPS classes (mage, warlock, rogue, hunter), and one "replacement" hybrid class (druid). The reason I call the druid a replacement hybrid is because they can replace any other class, but not the same time. If you don't have a warrior, substitute a druid. If you don't have a priest, substitute a druid.
It's reasonably clear that Blizzard intends a 5-man party to have one healer, one tank, and some DPS. But where does the paladin and shaman fit in this scheme? In my opinion, they are meant to be a "5th-man" class. Like the druid, they are a hybrid class. Unlike the druid, they cannot fully replace the warrior or priest. However, in my experience, the combination of "tank, healer, 5th-man" is stronger than either "tank, tank, healer" or "tank, healer, healer". They do this by providing necessary redundancy to both tank and healer, at the same time. They cannot replace the first tank or healer, but they can replace the second tank or healer.
So, in summary, the ideal 5-man party is "tank, healer, dps, dps, 5th-man". The paladin and shaman are designed as 5th-man classes, and are not intended to replace any of the other three roles.
In my experience, Blizzard has nailed the mark here. Playing my Paladin in a 5-man instance is a complete blast, and is a ton of fun.
The problem is that the game has expanded to more than 5-man instances. More thoughts on this to come later.