As a DM, the players playing the rogue and the paladin need to know each others boundaries. The Paladin Code is not an excuse to prevent another player from having fun; this isn't to say there can't be conflict, but unless the Rogue player allows it, The Paladin should not act like a babysitter, ensuring that the Rogue can't breathe without first passing a Detect Evil-flavored breathalyzer test.

Whatever it takes for the Paladin to look the other way -- conviction that setting a good example is better than scolding, the belief that all beings have a spark of goodness in them, ignorance, or a good bluff check from the Rogue -- should be made clear. This is not to say that the Rogue should commit unlawful acts without fear of repercussions, but said repercussions should primarily come from the DM.