... that the non-paladin players know it and won't be as tempted to be jerks about picking on a paladin PC for putting up with something evil.They'll still be jerks. I've seen games in which some players activly take bets on "Who can make the paladin fall". Mind you, these are the same games where players also change their character's alignment to evil instantly once they find out a paladin's playing. A change in the code isn't likely to stop those players from acting like jerks.
I think there's an obvious solution. Give the paladin lots of abilities that specifically help the rest of the party, like bonuses to save them when they're in trouble, power to dispel negative status effects, power to shield them from harm, buffs, etc. then target specifically those abilities when the paladin deviates from alignment. Suddenly those players who enjoy making the paladin fall realize they are only hurting themselves, and there is an incentive to keep the paladin's party-benefiting abilities turned on.
More flexible interpretations of the code allow role playing opportunities and more interesting stories, as long as the code remains central to being a paladin. The code should present inconveniences and difficult choices, otherwise we've failed to keep it interesting. I still think we're missing out on some opportunities to let the code play out at the tactical level on the table. For example, we could give the paladin a heroic bonus if he loudly announces his attack and charges head on, rather than approaching the enemy cautiously. Not that he can't approach cautiously, he just opts to forgo the heroic bonus when he does so. Also we could say he loses bonuses while contributing to a flanking attack. There are many other examples.
I thought the Knight from PHB2 had a smarter implementation of the code of honor thing. They have a "Knight's Challenge" ability they can use level/2+Chamod times per day for various stuff as they increase in level. They also have a code of honor thing that focuses on "fair play" - an evil knight might not have any problems razing a good temple, but he won't attack targets from behind or in their sleep or things like that. Each violation of that code costs the knight one daily use of the Challenge ability. If they don't have any uses left, they instead take a penalty to attacks and saves for the rest of the day on account of feeling demoralized.
Cool. I don't have PHB2 and didn't know about the knight class, so I can't comment on specifics, but that sounds like the kind of thing I had in mind. The Challenge ability sounds like a non-aligned version of Smite Evil. I think a paladin's smite ability should depend heavily on the code, as you say it does with the knight, and it should not be allowed to function in combination with certain very specific tactics.
I wonder why various paladin fixes have been made as new classes, rather than made to the paladin itself. (The most unwelcome example, IMO, was the cavalier in AD&D.) It's interesting that people who feel constrained by the Lawful Good alignment still like the idea of a code. Downplaying the code, it seems, won't make the paladin more popular. I don't believe PF has downplayed it compared to 3.5e, and I'm hoping that in the future, the paladin's code will get more, rather than less attention.