Thanks for the replies. However, I think I must be missing something as while the answers are basically unanimous... they appear to simply be wrong as far as I understand the rules regarding drones and modifying drones. So presuming it's me who's wrong, please bear with me as I speak out loud to explain why I think what I think so that any misconceptions I have can be identified:
The Paladin has as many modification slots as any other drone: one mod slot per point of body in each of the six modification categories (R5 pg 151). Sure the Paladin has 5 body vs the Steel Lynx's 6, but 5 slots per category is still plenty. That advantage in Body in practical terms is just an extra soak die. (an advantage more than made up for in the higher baseline armor on the Paladin)
So you don't have to downgrade anything to munch out a Paladin... you've got oodles of capacity to do that out of the box. Slap on a Heavy Size weapon Mount (R5 pg 163: cheaper and lower Avail rating than a core Heavy Weapon mount for vehicles), give it the Flexible Flexibility mod and it's nearly as good as a turreted mount, and you're able to slap anything from a pistol to an assault cannon on your Paladin. Yeah you've more than doubled the cost of the Paladin (+6000 for that weapon mount) whereas the Steel Lynx came with a free, turreted heavy weapon mount... but you're still under 1/2 the cost of a Steel Lynx with better survivability to boot. Still ahead of the game.
Tack on some sensor enhancements if you intend on the drone being relevant when you're not jumped in (along with maybe a pilot upgrade, which the Steel Lynx would also need anyway as they start with the same pilot rating) and those come out of a modification budget unaffected by the presence or lack of a weapon mount.
@ Size logistics: True apples to apples comparison. If you could get the Large Steel Lynx there, you could have instead gotten the Large Paladin there.
@ vulnerability to electrical elemental damage: Again so is every drone. It's in the Rigger's interest to keep the drones' total cost down as much as possible so repair costs are commensurately lower. In SRM play it costs 500 =y= per CM box to repair an unmodified Steel Lynx.. 220 =Y= per CM box on a Paladin that's already more than doubled it's cost by adding the weapon mount I described.
@ being nothing but mobile cover: I don't know if the Paladin is being confused with the Matilda, but it'd be easy to do. The Matilda is a refridgerator sized mobile cover-granter. With less than half the armor for more than 3 times the price. AND it suffers a half-armor penalty when it's got its shields out protecting is principal, which of course the Paladin doesn't suffer. The Paladin's combination of stats doesn't just make the Steel Lynx look obsolete... why ever take a Matilda?
Sure, my SRM rigger uses a Paladin as his beatstick drone, but I feel dirty doing it. I'm absolutely not invested in being right... I'm hoping I'm wrong! It feels like there's got to be something wrong on the rules balance, but I'm not seeing it?