if you had 500pp to set up a new paladin - advice needed.

[Dawgrin]

Don't forget splitpaw gear...hands, mask and belt. They sell very cheap and have very useful stats for paladins.
I would also recommend Azure sleeves. They have more AC than bronze, weigh less and usually sell for under 50pp.
I would also say that you should avoid the 2 hander for now and focus on a sword and board set up. Until he is high enough to get over the level 10 dmg cap a 2 hander is useless.
Go for a cheap but effective shield like bark shield or chitin shell shield each of which sells for 15-40pp and each of which has more AC than a crested mistmoore shield, but fewer resists.
As far as weapons go...silverish scimitar is good, I like the cold iron morning star as well, but it is a bit slow. You might invest some time and get him a screaming mace. All the while though be sure you are urging him to save up for the all powerful ghoulbane...=)

Also please feel free to see me in game and I will help you out with any more advice I can think of.