Yeah, admittedly the "well if [god] is angry at [cleric/paladin], then why don't they revoke their powers?" argument can only ever give us a binary switch. Good talent is hard to find (has been for the past 5 years, at least in my country), and you're not going to fire your highest-performing employee for the slightest transgression...or even a few significant ones. I wonder what other "tools" the gods have in their toolbox for handling errant clerics or paladins without "firing" them.
I like both of your interpretations but this one is more impactful character-wise for me. Without bringing too much attention to it, that's definitely what's happening in Gobbotopia: complete with a more charismatic and diplomatic leader who might be more palatable to neighboring nations when they hit the negotiating table. And Redcloak doesn't get to live in the better world he created...
I'm not going to live there. There's no place for me there, any more than there is for you. Malcolm... I'm a monster. What I do is evil. I have no illusions about it, but it must be done.