I had a paladin I was running around with my hunters group a while back (pre-BC). The problem I had was that flash of light was efficient but didn't heal enough for instances when I needed it. Holy light was fine for healing but the efficiency was so crappy that some boss fights were just beyond his mana capacity. Once you hit BC and get +700 healing or more (fairly trivial) I think it would make things better but I'm not sure by how much. Also, the arena paladins I see are almost all well over +1000 healing to make them viable.

Short version: my priest generates less aggro on healing and has more efficient heals overall.

Holy pally:
+11% to crit on heals
+12% to heal amount
+60% mana refund on crit heals

Holy/disc priest:
+30% mana regen while casting
-20% threat from heals
-15% mana cost on greater heal/heal/lesser heal
+25% of spirit applied as +healing
+10% to heals
+6% clearcasting chance on flash/greater heals
Reduced cost AOE heals
Instant AoE heals

Caveat emptor: with stupid amounts of crit/heal gear, pallies might surpass priests for sustained downranked healing in raids. We're talking about mere mortals here, though.

[edit] Plus, with a pally consecrating/shielding to easily keep solid aggro on multiple mobs plus casting salvation on the priest, you won't have aggro issues so it won't matter if your priest is squishy.